In the event they opt to itemize, taxpayers often claim the mortgage interest deduction, state and local tax deduction, and charitable contributions deduction. What Tax Deductions Are Currently Allowed for Individuals?ĭuring tax filing season, all taxpayers must decide whether to claim the standard deduction ($12,400 for individuals and $24,800 for married filing jointly) or itemize their deductions. The tax code provides this treatment in order to accommodate for investment, risk, and losses, and account for other taxes on the same income throughout the year. The tax code allows the taxpayer to deduct the $200 as a loss, since his year-end income for that stock is $800, not the $1,000 originally invested. For example, if a taxpayer invests in a stock worth $1,000 at the beginning of the year and at the end of the year the stock is only worth $800, the taxpayer has experienced a $200 loss. The tax code accommodates for this by allowing taxpayers to deduct (or exclude) income which has already been taxed or should not be counted for other reasons. Ideally, income should only be taxed once and account for any losses. Why Does the Tax Code Include Tax Deductions? Itemized deductions are popular among higher-income taxpayers who often have significant deductible expenses, such as state/local taxes paid, mortgage interest, and charitable contributions. A standard deduction is a single deduction at a fixed amount. A tax deduction is a provision that reduces taxable income.
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