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Tax deductions introduction - Taxation Video Lecture - Economics
FAQs on Tax deductions introduction - Taxation Video Lecture - Economics
| 1. What are tax deductions? |  |
Ans. Tax deductions are expenses or costs that can be subtracted from a person's taxable income, reducing the amount of taxes they owe. These deductions are typically based on expenses such as medical expenses, mortgage interest, charitable contributions, and business expenses.
| 2. How do tax deductions work? | |
Ans. Tax deductions work by reducing the amount of income that is subject to taxation. After calculating the total taxable income, individuals or businesses can subtract eligible deductions from this amount, resulting in a lower taxable income. This, in turn, reduces the tax liability and can potentially lead to a larger tax refund.
| 3. What are some common tax deductions available to individuals? | |
Ans. Some common tax deductions available to individuals include deductions for mortgage interest, state and local taxes, medical expenses, charitable contributions, and education expenses. These deductions can vary based on individual circumstances and the tax laws of the country.
| 4. Can I claim tax deductions if I take the standard deduction? | |
Ans. No, if you choose to take the standard deduction, you cannot claim individual tax deductions. The standard deduction is a fixed amount set by the tax authorities and is available to taxpayers who do not itemize their deductions. It is often chosen by individuals who do not have significant deductible expenses.
| 5. Are there any limits or restrictions on tax deductions? | |
Ans. Yes, there are limits and restrictions on tax deductions. Some deductions have a maximum amount that can be claimed, while others may be subject to income limitations. Additionally, certain deductions may require specific documentation or evidence to be eligible. It is important to review the tax laws and consult with a tax professional to understand the specific limitations and restrictions for each deduction.
Text Transcript from Video
In this video, I
now want to cover
one of the other most
misunderstood ideas
when people think
about taxes, and that's
the idea of deductions.
So, one of the most
common tax deductions
is the deduction you get on
interest on your mortgage.
So let's say that this year
on my mortgage-- of the part
of my mortgage that is interest,
let's say it's $10,000.
It is $10,000 on my
interest on my mortgage.
And you'll either already
know or someone might tell you
that this is tax deductible.
And the misconception that
I've seen many, many times
is that people think that
since this is a tax deduction,
that this $10,000 should be
deducted from their taxes.
So in the previous example,
we showed the scenario
where this person
making $100,000
would have to pay
$21,720 in taxes.
And so based on
that misconception,
they would say, OK, I get
a $10,000 tax deduction,
now I would pay $11,720.
And that is wrong.
The deduction doesn't happen
from the taxes you pay.
The deduction happens
from your stated income.
So if this person right here
had a $10,000 tax deduction,
instead of saying that they
made $100,000 that year,
they would say that
they made $90,000.
So once again, the
deduction does not
come directly from the taxes.
That would be a tax credit.
The deduction comes from
the reported income.
So what would be the
actual effect on the taxes?
Well, we just have to
look at this $90,000.
It still kind of shows
up in that top bracket.
So the real difference
is just going
to be this $10,000 difference.
Before, he was paying
28% on this $10,000.
Now he won't have to pay 28%
on that incremental $10,000.
Another way to think about it,
instead of this being 17,750
times 28%, it
would now be 7,750.
Because the reported
income is now only $90,000.
So the actual number-- we
can get our calculator out
and just calculate it.
There's two ways
you could do it.
You could just say, look, if
I'm going to have spent 10,000--
if my income is
deducted by 10,000,
and I'm going to save
28% on that 10,000,
you could just subtract
2,800 from this.
But just to show you
how it'll all work,
that it all works out
to the same thing,
let's just go through the
same calculation again.
We have 7,750 times
0.28 plus 48,300 times
0.25 plus 25,600
times 0.15 plus $835.
And it's $18,920.
So now the taxes
will be $18,920.
And as you can
see, the difference
between the old and
the new is exactly
$2,800 because that's
essentially what the amount
that we would be
taxed on that $10,000
if we had made that much money.
Anyway, hopefully that
doesn't confuse you too much.
now want to cover
one of the other most
misunderstood ideas
when people think
about taxes, and that's
the idea of deductions.
So, one of the most
common tax deductions
is the deduction you get on
interest on your mortgage.
So let's say that this year
on my mortgage-- of the part
of my mortgage that is interest,
let's say it's $10,000.
It is $10,000 on my
interest on my mortgage.
And you'll either already
know or someone might tell you
that this is tax deductible.
And the misconception that
I've seen many, many times
is that people think that
since this is a tax deduction,
that this $10,000 should be
deducted from their taxes.
So in the previous example,
we showed the scenario
where this person
making $100,000
would have to pay
$21,720 in taxes.
And so based on
that misconception,
they would say, OK, I get
a $10,000 tax deduction,
now I would pay $11,720.
And that is wrong.
The deduction doesn't happen
from the taxes you pay.
The deduction happens
from your stated income.
So if this person right here
had a $10,000 tax deduction,
instead of saying that they
made $100,000 that year,
they would say that
they made $90,000.
So once again, the
deduction does not
come directly from the taxes.
That would be a tax credit.
The deduction comes from
the reported income.
So what would be the
actual effect on the taxes?
Well, we just have to
look at this $90,000.
It still kind of shows
up in that top bracket.
So the real difference
is just going
to be this $10,000 difference.
Before, he was paying
28% on this $10,000.
Now he won't have to pay 28%
on that incremental $10,000.
Another way to think about it,
instead of this being 17,750
times 28%, it
would now be 7,750.
Because the reported
income is now only $90,000.
So the actual number-- we
can get our calculator out
and just calculate it.
There's two ways
you could do it.
You could just say, look, if
I'm going to have spent 10,000--
if my income is
deducted by 10,000,
and I'm going to save
28% on that 10,000,
you could just subtract
2,800 from this.
But just to show you
how it'll all work,
that it all works out
to the same thing,
let's just go through the
same calculation again.
We have 7,750 times
0.28 plus 48,300 times
0.25 plus 25,600
times 0.15 plus $835.
And it's $18,920.
So now the taxes
will be $18,920.
And as you can
see, the difference
between the old and
the new is exactly
$2,800 because that's
essentially what the amount
that we would be
taxed on that $10,000
if we had made that much money.
Anyway, hopefully that
doesn't confuse you too much.
About this Video
Oct 06, 2025
Last updated
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