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The standard deduction is a way to account for progressive taxation at the very bottom of the scale. The first $5,000-$10,000 of income isn't taxed. If you've

The standard deduction is a way to account for progressive taxation at the very bottom of the scale. The first $5,000-$10,000 of income isn't taxed. If you've donated to charity (also paid school tuition, and other things) in excess of that amount, you can itemize these and deduct them, in which case you don't get to claim the standard deduction. Even if you don't have any deductions to claim, you get the "standard deduction". This reduces your effective taxable income. You only get money refunded if you have a "refundable tax credit". Tax credits lower your tax liability; refundable credits can lower it below zero liability such that you are owed money. One common refundable credit is earned by paying higher education tuition. (It should go without saying that I'm not an accountant; I only play one on the Internet.)

chris_wot 14y ago
That's hidiously confusing.
- narcissus 14y ago
  It almost sounds like it's similar to the fact that in Australia you don't pay tax on your first $6,000. The difference, though, seems to be that in Australia, all of your deductions reduce your taxable income whereas if Australia was using the same tax system as the US, you would have to have more than $6,000 in deductions before actually affecting your taxable income. That's the way I see it, anyway.
  - chris_wot 14y ago
    That's actually correct :-) At least on the Australian side of things, anyway!
  - Turing_Machine 14y ago
    There are actually two separate things going on here: 1) Exemptions - each person gets $x worth of income before any tax is owed at all. Roughly, this depends on your family size (there are many other nuances). This sounds like your $6,000 rule. 2) Deductions -- these are allowable expenses (business expenses, charitable contributions, certain types of interest, and so on). You can either keep records and claim the actual amount (which sounds like your system), or you can take the "standard deduction", which is the IRS's estimate of the amount of expenses an average person might have. The advantages of the standard deduction are that you don't have to keep records, and the standard deduction may actually be more than your real expenses if you don't have a lot of them.
maxerickson 14y ago
The actual effect is to not tax the last $5,000 to $10,000 of income. If you assert that people with low incomes wouldn't have itemized expenses greater than the standard deduction then it is somewhat progressive, but deductions in general are of greater benefit to people with higher marginal rates.

chris_wot 14y ago

That's hidiously confusing.

narcissus 14y ago
It almost sounds like it's similar to the fact that in Australia you don't pay tax on your first $6,000. The difference, though, seems to be that in Australia, all of your deductions reduce your taxable income whereas if Australia was using the same tax system as the US, you would have to have more than $6,000 in deductions before actually affecting your taxable income. That's the way I see it, anyway.
- chris_wot 14y ago
  That's actually correct :-) At least on the Australian side of things, anyway!
- Turing_Machine 14y ago
  There are actually two separate things going on here: 1) Exemptions - each person gets $x worth of income before any tax is owed at all. Roughly, this depends on your family size (there are many other nuances). This sounds like your $6,000 rule. 2) Deductions -- these are allowable expenses (business expenses, charitable contributions, certain types of interest, and so on). You can either keep records and claim the actual amount (which sounds like your system), or you can take the "standard deduction", which is the IRS's estimate of the amount of expenses an average person might have. The advantages of the standard deduction are that you don't have to keep records, and the standard deduction may actually be more than your real expenses if you don't have a lot of them.

maxerickson 14y ago

The actual effect is to not tax the last $5,000 to $10,000 of income. If you assert that people with low incomes wouldn't have itemized expenses greater than the standard deduction then it is somewhat progressive, but deductions in general are of greater benefit to people with higher marginal rates.