The Importance of Tax Deductions

By:  Laurence M. Vance
04/24/2013
       
The Importance of Tax Deductions

Tax deductions are not subsidies. They don’t have to be “paid for.” Yes, they deprive the government of revenue, but that is essential for a free society in which people are able to keep everything they earn and decide for themselves on what to do with it instead of the government deciding for them.  Until the income tax is abolished, we need all the tax deductions we can get.

The United States personal income tax filing season has officially ended. No more forms, no more schedules, no more instructions, no more H&R Block and TurboTax commercials, and no more roadside signs advertising tax preparation services that specialize in getting you the maximum earned income credit.

There are two other tax-related items that will be going away as well, at least in part, but unlike forms, schedules, instructions, commercials, and signs, they won’t be returning next year. In the case of these two items, however, their absence will not be a good thing.

Tax exemptions and tax deductions serve to reduce one’s income subject to tax. Exemptions and deductions work the same way, but deductions are generally subject to more limitations, conditions, and exclusions. Both differ from tax credits in that tax credits serve to reduce the amount of tax owed on one’s income. Either way, one will pay less in taxes the greater the number, and the greater the amount, of exemptions, deductions, and credits that he qualifies for.

Under current tax law, each taxpayer is entitled to one personal exemption for himself, his spouse, and each of his dependents. Dependents don’t necessarily have to be minor children, but can include children under 24 who are full-time students and don’t provide more than half of their own support, qualifying relatives who live with the taxpayer, and even the taxpayer’s parents who don’t live with him if the taxpayer provides more than half of their support. The amount of each exemption for tax year 2012 was $3,800.

There were a number of tax deductions available for tax year 2012 that one might have qualified for. Some of these are permanent (at least until such time as Congress changes the tax code), and some of them are temporary and subject to change from year to year.

For 2012 there were deductions for educator expenses, business expenses of performing artists, health savings accounts, moving expenses, the deductible part of self-employment tax paid, health insurance premiums paid by the self-employed, IRAs, tuition and fees, and student loan interest. But even if the taxpayer didn’t qualify for any of these deductions, there is the standard deduction of $5,950 ($11,900 for married filing jointly) that was available to everyone. Taxpayers (and their spouses) who are age 65 or older on the last day of the tax year or legally blind receive an extra $1,150 for each of those circumstances.

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