What is a Tax Break?

A tax break is a tax deduction, tax credit or reduction in tax rate.

How Does a Tax Break Work?

For example, let's say John and his wife had a baby in 2011. When John files his tax return for the year 2011, he will qualify for a $1,000 child tax credit, which lowers his tax bill by $1,000. In other words, John and his wife get a tax break for having a baby.

There are hundreds of different kinds of tax breaks available to individuals and companies, though these tax breaks are usually only available under certain circumstances. Many tax breaks are not available to taxpayers with high incomes.

Why Does a Tax Break Matter?

Tax breaks lower tax bills, which is why taxpayers and tax advisors spend considerable amounts of time determining which deductions and credits they qualify for each year. Governments often implement tax breaks as a way to encourage certain behavior or investment in certain industries or programs.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

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