Final answer:
Expenses for the production or collection of income are typically deductions reducing adjusted gross income to calculate taxable income. Deductions can be itemized or a standard set amount, and as income increases, both the amount and percentage of tax also increase.
Step-by-step explanation:
Understanding Tax Deductions
Expenses incurred for the production or collection of income are generally considered deductions from adjusted gross income (AGI). AGI is a measure of a taxpayer's income that includes all gross income, such as wages, dividends, alimony, capital gains, business income, and retirement distributions. It is reduced by specific deductions known as adjustments to income.
Your taxable income is calculated by subtracting deductions and exemptions from your adjusted gross income. These deductions may include the standard deduction, itemized deductions, or both, and exemptions for dependents.
Deductions are varied and cover a range of expenses, such as interest on home mortgages, property taxes, medical expenses, and charitable donations if you choose to itemize. To calculate whether itemizing is beneficial, the individual's expenses must be more than the standard deduction.
Furthermore, the figure shown on tax forms indicates that as an individual's income increases, both the amount and the fraction of additional income paid in tax increase. This is characteristic of a progressive tax system.