{ "id": "R42872", "type": "CRS Report", "typeId": "REPORTS", "number": "R42872", "active": true, "source": "EveryCRSReport.com, University of North Texas Libraries Government Documents Department", "versions": [ { "source": "EveryCRSReport.com", "id": 586931, "date": "2017-03-17", "retrieved": "2020-01-02T14:43:20.146810", "title": "Tax Deductions for Individuals: A Summary", "summary": "Every tax filer has the option to claim deductions when filing their income tax return. Deductions serve four main purposes in the tax code: (1) to account for large, unusual, and necessary personal expenditures, such as extraordinary medical expenses; (2) to encourage certain types of activities, such as homeownership and charitable contributions; (3) to ease the burden of taxes paid to state and local governments; and (4) to adjust for the expenses of earning income, such as unreimbursed employee expenses.\nSome tax deductions can be taken by individuals even if they do not itemize. These deductions are commonly referred to as above-the-line deductions, because they reduce a tax filer\u2019s adjusted gross income (AGI, or the line). In contrast, itemized and standard deductions are referred to as below-the-line deductions, because they are applied after AGI is calculated to arrive at taxable income. \nTax filers have the option to either claim a standard deduction or itemize certain deductions. The standard deduction, which is based on filing status, is, among other things, intended to reduce the complexity of paying taxes, as it requires no additional documentation. Alternatively, tax filers claiming itemized deductions must list each item separately on their tax return and be able to provide documentation that the expenditures being deducted have been made. Only tax filers with deductions that can be itemized in excess of the standard deduction find it worthwhile to itemize. Whichever deduction the tax filer claims\u2014standard or itemized\u2014the amount is subtracted from AGI.\nDeductions differ from other tax provisions that can reduce a tax filer\u2019s final tax liability. Deductions reduce final tax liability by a percentage of the amount deducted, because deductions are calculated before applicable marginal income tax rates. In contrast, tax credits generally reduce an individual\u2019s tax liability directly, on a dollar-for-dollar basis, because they are incorporated into tax calculations after marginal tax rates are applied.\nSome deductions can only be claimed if they meet or exceed minimum threshold amounts (usually a certain percentage of AGI) in order to simplify tax administration and compliance. In addition, some deductions are subject to a cap (also known as a ceiling) in benefits or eligibility. Caps are meant to reduce the extent that tax provisions can distort economic behavior, limit revenue losses, or reduce the availability of the deduction to higher-income tax filers.\nBecause some tax filers and policymakers may not have detailed knowledge of tax deductions, this report first describes what they are, how they vary in their effects on reducing taxable income, and how they differ from other provisions (e.g., exclusions or credits). Next, a discussion concerning the rationale for deductions as part of the tax code is provided. Because some deductions are classified as tax expenditures, or losses in federal revenue, they might be of interest to Congress from a budgetary perspective. The final section of this report includes tables that summarize each individual tax deduction, under current law. Many of these deductions are part of the permanent income tax code. 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Deductions serve four main purposes in the tax code: (1) to account for large, unusual, and necessary personal expenditures, such as extraordinary medical expenses; (2) to encourage certain types of activities, such as homeownership and charitable contributions; (3) to ease the burden of taxes paid to state and local governments; and (4) to adjust for the expenses of earning income, such as unreimbursed employee expenses.\nSome tax deductions can be taken by individuals even if they do not itemize. These deductions are commonly referred to as above-the-line deductions, because they reduce a tax filer\u2019s adjusted gross income (AGI, or the line). In contrast, itemized and standard deductions are referred to as below-the-line deductions, because they are applied after AGI is calculated to arrive at taxable income. \nTax filers have the option to claim either a standard deduction or to itemize certain deductions. The standard deduction, which is based on filing status, is, among other things, intended to reduce the complexity of paying taxes, as it requires no additional documentation. Alternatively, tax filers claiming itemized deductions must list each item separately on their tax return and be able to provide documentation that the expenditures being deducted have been made. Only tax filers with deductions that can be itemized in excess of the standard deduction find it worthwhile to itemize. Whichever deduction the tax filer claims\u2014standard or itemized\u2014the amount is subtracted from AGI.\nDeductions differ from other tax provisions that can reduce a tax filer\u2019s final tax liability. Deductions reduce final tax liability by a percentage of the amount deducted, because deductions are calculated before applicable marginal income tax rates. In contrast, tax credits generally reduce an individual\u2019s tax liability directly, on a dollar-for-dollar basis, because they are incorporated into tax calculations after marginal tax rates are applied.\nSome deductions can only be claimed if they meet or exceed minimum threshold amounts (usually a certain percentage of AGI) in order to simplify tax administration and compliance. In addition, some deductions are subject to a cap (also known as a ceiling) in benefits or eligibility. Caps are meant to reduce the extent that tax provisions can distort economic behavior, limit revenue losses, or reduce the availability of the deduction to higher-income tax filers.\nBecause some tax filers and policy makers may not have detailed knowledge of tax deductions, this report first describes what they are, how they vary in their effects on reducing taxable income, and how they differ from other provisions (e.g., exclusions or credits). 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The Tax Increase Prevention Act of 2014 (P.L. 113-295) extended several temporary provisions through 2014 (for the 2015 tax filing season).", "type": "CRS Report", "typeId": "REPORTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "http://www.crs.gov/Reports/R42872", "sha1": "aee98e3254ac1f370e4920c6e1caef38add7a22d", "filename": "files/20150218_R42872_aee98e3254ac1f370e4920c6e1caef38add7a22d.html", "images": null }, { "format": "PDF", "encoding": null, "url": "http://www.crs.gov/Reports/pdf/R42872", "sha1": "1c0fd1abb6bca6638fa6ed07249e6e8e699f1c20", "filename": "files/20150218_R42872_1c0fd1abb6bca6638fa6ed07249e6e8e699f1c20.pdf", "images": null } ], "topics": [ { "source": "IBCList", "id": 350, "name": "Individual and Family Tax Policy" }, { "source": "IBCList", "id": 4092, "name": "Tax Reform" } ] }, { "source": "University of North Texas Libraries Government Documents Department", "sourceLink": "https://digital.library.unt.edu/ark:/67531/metadc276934/", "id": "R42872_2014Jan08", "date": "2014-01-08", "retrieved": "2014-03-05T18:18:19", "title": "Tax Deductions for Individuals: A Summary", "summary": "This report first describes what tax deductions are, how they vary in their effects on reducing taxable income, and how they differ from other provisions (e.g., exclusions or credits). 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