Taxes · Module 3 of 6
What you can subtract
Tax deductions versus tax credits, the standard amount versus itemizing, and keeping proof for your claims.
Key terms in What you can subtract
- Standard deduction
The standard deduction is a set dollar amount that reduces the income on which a U.S. taxpayer is taxed. The amount depends on filing status and is adjusted annually for inflation. Extra amounts exist for older or blind filers. A taxpayer generally takes either it or itemized deductions, not both.
Source: Internal Revenue Service, Topic no. 551, Standard deduction
- Itemized deduction
Itemized deductions are specific, documented expenses that a U.S. taxpayer may subtract from income instead of taking the standard deduction. Eligible categories include certain state and local taxes, mortgage interest, charitable gifts and large medical costs, each subject to limits. They are reported on Schedule A of the return.
Source: Internal Revenue Service, Topic no. 501, Should I itemize?
- Tax credit
A tax credit is an amount subtracted directly from the tax owed, as opposed to a deduction, which lowers the income that tax is figured on. Some credits are aimed at particular groups. The U.S. Earned Income Tax Credit, for example, is designed for low- to moderate-income workers and families.
Source: Internal Revenue Service, Earned Income Tax Credit (EITC)
Every term on Lever is in the money glossary.
About this module
What you can subtract is part of Taxes, one of 15 subjects in Lever. It’s a short run of 8 lessons, about 20 minutes in all, so you can finish it in one sitting.
Every lesson takes one idea at a time. You read it with the math worked out step by step, answer a question that puts it to use, then see why the right answer is right and why the others aren’t.
It’s for anyone who was never taught this, and you don’t need to know anything first. Every lesson is free. Lever works out what you already know, so you can start here or let your path bring you to it.
More in Taxes
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1
The part that is not yours
Why we pay taxes, what income they’re worked out on, and how to set tax aside yourself when no one does it for you.
5 lessons -
2
What your rate really is
How tax brackets really work, and the difference between the rate on extra income and the rate you actually paid.
5 lessons -
4
The paperwork year
Filing your tax return: who needs to, when it’s due, whether to pay for help, and how to fix a mistake.
7 lessons -
5
What was already taken
The tax taken from your paycheck, why it’s never exactly right, and how it gets squared up at the end of the year.
5 lessons -
6
Money that is not wages
How tax works on investment gains, losses and dividends, and how a loss can lower the tax on a gain.
6 lessons
Try this module
It’s part of Taxes. Lever will bring it to you when you’re ready, or you can go straight there.