Erik corrects himself:

> Dave Oksner wrote:
>  > On Tue, Dec 09, 2003 at 12:48:44PM -0600, Erik Vistica wrote:
>  >
>  >>My limited understanding of taxing comes from filling out my 1040 the
>  >>old fashioned way. A tax 'deduction' only gives you back a small
>  >>percentage of what was taken from you by force. Very different from a
>  >>tax 'credit'.
>  >
>  >
>  > Then I'm pretty sure that you're understanding is wrong.  Or, perhaps,
>  > it's your expectations.
>  >
>  > When you add up all your deductions, that sum is subtracted from your
>  > taxable income.  If you were able to deduct as much as you made, then
>  > you would, in fact, get back all the taxes you might have paid throughout
>  > the year.  However, most of us only get to deduct a small amount of our
>  > income.
>  >
>  > A tax deduction does not mean that you get an equal amount back on your
>  > taxes--it means that the amount deducted is not taxed, reducing your
>  > total taxable income.
>  >
>  > Did that make sense?
>  >
>  > Dave
>
>  Yes. My understanding was wrong. Pretty obvious now that you spell it
>  out. Not sure how I've missed that little fact for all these years :-)
>
>  I think it stems from a statement I'd heard many years ago about how the
>  interest you pay on a home loan only reduces your tax by ~20% of the
>  interest you paid. I mis-interpreted the meaning.
>
>  Thanks for clearing it up.

Actually, Erik had it right the first time. As Dave writes, a tax deduction
is deducted from your gross income to form what is called your taxable income.
It's that smaller number on which you pay tax, but as Erik first wrote, that
means that you're only getting back 10%, 20%, or 30% of the original value of
the deductions, depending on your tax bracket.

As Erik also originally wrote, that's very different from a tax credit. In
that case, a tax credit is subtracted from your taxes due, *after* you have
calculated your tax due based on your taxable income. In the case of a tax credit,
you get 100% of your money back, simply because a tax credit is applied as a
direct reduction of your taxes due, at the end of the calculation, rather than
at the beginning, as you do with a tax deduction.

Wirt Atmar

* To join/leave the list, search archives, change list settings, *
* etc., please visit http://raven.utc.edu/archives/hp3000-l.html *