- What is a tax break?
A tax break is a provision in the tax rules
that permits a taxpayer
to legally pay less income tax.
Now why do these tax breaks exist?
One reason is for social fairness.
Low-income people ought not to have to pay
any tax when their income is so low
when their income is solow that they are using all
that they are using all of their income
of their income to payfor living necessities.
to pay for living necessities.
Sometimes tax payers get a break
if they spent their income in certain,
in certain socially favorable ways,
socially favorable ways
such as by donating money to charity.
So, tax breaks are provisions in a tax rules
that permit a taxpayer to legally pay less tax.
Let's talk about some general tax breaks
that are available to people like you and to me.
For example, if you're a single person
in the United States, you can make income up to $12,000
you can make income of up to $12,000
before you have to pay any tax at all.
That income is excluded from taxation,
so you can view that as a tax break.
There are other examples of tax breaks
in the U.S. Tax Code.
For example, if your healthcare is provided
by your employer, you do not have to pay income tax
on the value of that healthcare.
Now how did this tax break arise?
Well, during World War II,
there were wage and price controls
to avoid a rapid increase in wages.
Employers could not increase cash wages,
so they attracted new employees
by giving them healthcare benefits
instead of increase cash wages.
The Internal Revenue Service of the Unites States
ruled that no income tax had to be paid
on the value of the healthcare benefits
that were given in place of increased cash wages.
Now, by the way, you may have heard of tax loopholes.
A tax loophole is a cynical phrase.
Tax loophole is a cynical phrase.
Really, a tax loophole is someone else's tax break.
So, if you work for an employer
who does not provide healthcare benefits,
you might view this non-taxability
of the value of employer-provided healthcare
of employer-provided healthcareas being a tax loophole
as being a tax loophole.
Because it's a tax break that others get and you don't.
Another tax break for individuals in the United States
is the Home Mortgage Interest Deduction.
If you have a home and a mortgage on that home,
any interest on that mortgage is tax-deductible.
Tax-deductible, of course, means
that you don't have to pay income tax
to pay income tax on theamount of your income
on the amount of your income you use to pay
you use to pay for yourhome mortgage interest.
for your home mortgage interest.
This deduction is now a very big tax break
and is enjoyed by tens of millions
of taxpayers in the United States.
Now, in summary, what kind of people benefit
from tax breaks?
Everyone does.
High-income individuals benefit more
because they make more money.
However, as a percentage of income, all income groups,
all income groups,low-income, middle-income,
low-income, middle-income, and high-income,
and high-income benefit from tax breaks
benefit from tax breaks pretty much in-proportion
pretty much in proportion to their income.
to their income.
Low-income individuals receive benefits
from things such as targeted tax credits,
such as targeted tax credits
like the Earned Income Tax Credit.
High-income individuals benefit
from charitable deduction tax breaks,
home mortgage interest deductions on large homes,
and lower capital gains rates.
Tax breaks are out there
and we need to understand the tax code
to make sure that we are receiving
that we are receiving the tax breaks
the tax breaks that are targeted to us
that are targeted to us inour personal circumstances.
and our personal circumstances.
So, who benefits from tax breaks?
Everyone does. Probably, including you.