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In many tax systems throughout the world, taxpayers are allowed both business and personal tax deductible expenses to offset the amount of tax ultimately owed. In the United States, for example, business tax deductible expenses are usually expenses that are related to the production of income. Personal expenses that are deductible often include a predetermined deduction for the taxpayer and all dependents, medical and education expenses, as well as taxes, interest, and retirement contributions. Losses and gifts may also be considered tax deductible expenses.
Business expenses are frequently considered to be tax deductible expenses, as many governments want to encourage commerce and growth among the business sector. In simple economic terms, the old saying, "it takes money to make money" applies. While deductible expenses certainly apply to large corporations, they may apply to small businesses, as well as to home offices in the United States. Common examples of tax deductible expenses for a business may include wages paid to employees, advertising, capital improvements, and/or office supplies. Often, a taxpayer who works from his or her home may even deduct a portion of the expenses related to maintaining the home.
Personal tax deductible expenses in the United States, as in many other jurisdictions, start with a set amount that the taxpayer may deduct for himself or herself, as well as for each dependent. In the United States, the personal deduction amount changes on a yearly basis. A taxpayer must, however, choose between taking the standard deduction amount or itemizing deductions.
If a taxpayer chooses to itemize deductions in the United States, he or she may use a significant portion of his or her out-of-pocket medical expenses incurred during the tax year. Interest paid on a mortgage loan may also be considered tax deductible, as are some expenses for post-secondary education. Contributions to many retirement plans are also often considered to be tax deductible expenses.
When a taxpayer makes a gift of money or something else of value to a charity, that gift may be tax deductible for both an individual or a business. Losses are another "expense" that may be deductible for both businesses and individuals in the United States. For purposes of a tax deduction, a loss is the term used to refer to losing money as the result of a theft, natural disaster, or other casualty. For example, if a taxpayer's home is damaged in a tornado or hurricane, any amount not covered by liability insurance may be a tax deduction.
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