A tax allowance is a reduction in the tax base, i.e. all the income recorded by the tax authorities in order to calculate the amount of tax. Thus, this legal device allows the taxpayer not to be taxed on all his taxable income. The allowance can be calculated as a percentage or be a lump sum. It should not be confused with a reduction or a tax credit.
Tax Allowance: The Different Types Of Allowance / Distinguish Between Reduction And Tax Credit
Differentiate Allowance With Reduction And Tax Credit
It is important to distinguish between the terms “tax allowance”, “tax credit” and “tax reduction”.
The tax reduction does not apply to taxable income. This is a deduction applied to the amount of tax due by the taxpayer, which cannot give rise to a refund . It can for example concern donations, the hiring of an employee at home …
The tax credit is a deduction applied to the amount of tax owed by the taxpayer, which may give rise to a refund . This could be, for example, childcare costs, interest on loans taken out by students, etc.
Different Types Of Allowances
There are different types of deductions: 40% deduction on dividends, 10% for professional expenses, for inheritance (depending on the family relationship with the deceased), on real estate capital gains, on movable capital gains , for journalists’ expenses, for people over 65 or disabled, etc.