30 October 2008
Rebate: The refund of a tax that has been overpaid. Some countries rebate certain taxes that have been paid on goods that are then exported.
Exemption: A tax exemption is an exemption from all or certain taxes of a state or nation in which part of the taxes that would normally be collected from an individual or an organization are instead foregone. Normally a tax exemption is provided to an individual or organization which falls within a class which the government wishes to promote economically, such as charitable organizations. Tax exemptions are usually meant to either reduce the tax burden on a particular segment of society in the interests of fairness or to promote some type of economic activity through reducing the tax burden on those organizations or individuals who are involved in that activity. Typical tax exemption criteria used include: age of the individual paying tax, public services which the individual has performed (e.g., war veterans), ownership of types of property (homeowners, farmers), geographic location of property, income level of the individual paying the tax, or the value of the property being taxed. In the United States the classic property tax exemption provided homeowners is the homestead exemption. There are many others such as exemptions on income tax (exemptions for dependents or people such as children who are financially dependent on the tax payer). Tax exemptions have a history as being tools of social and economic change with unintended consequences.
deduction: A tax deduction or a tax-deductible expense affects a taxpayer's income tax. A tax deduction represents an expense incurred by a taxpayer. It is subtracted from gross income when the taxpayer computes his or her income taxes. As a result, the tax deduction will lower overall taxable income and thus lower the amount of tax paid. The exact amount of tax savings is dependent on the tax rate and can be complicated to determine.
A tax credit is a similar concept, but is different in that it reduces the tax owed, rather than reducing taxable income. This amount of tax savings is not dependent on the rate the taxpayer pays.
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