This year, Americans who just hate the idea of being bled for their taxes can take a little solace in one little statistic – collectively, Americans are going to be paying less in taxes this year (when compared to the size of the nation's economy) than at any time in the past 60 years. And one major reason that Americans are able to pay lower taxes today than ever before is that they have such a vast list of income tax deductions that they can take advantage of today – both personal and business-related.
Which might seem a little strange, considering that we've had income tax deductions for as long as we've had income taxes. We've had a federal income tax form, like the one we have now for almost a century now. The first 1040 form, back in the year 1913, wave Americans options in no less than a half dozen discounts. What kind of payments were those? They sounded pretty much like the discounts we have today: federal taxpayers were allowed to write off expenses made for the business; they were allowed to write off local taxes, terrible losses that they did not have insurance for, expenses made to pay interest on a business loan or a personal loan, depreciation, and unrecoverable debts. Interestingly enough, those very income tax deductions exist to this day in some shape or form.
For instance, if your business pays interest, that's a deductible to this day; while it would be really nice if the interest we paid on our personal credit cards and loans were deductible, the tax law amendments made about 25 years ago made sure that those were no longer allowed. The one interest payment that you can claim a deduction in when it's a personal one is if it's for a home mortgage. This one still survives today and makes for one of the most profitable commitments that individual tax payers have. Individual families have claimed half a trillion dollars in income tax deductions for interest paid for mortgages over the past five years.
There are lots of depreciation-related deductions made as well. These are write-offs that we make for the way our assets lose value through wear and tear or through purely becoming old and obsolete from one year to the next. These rules are almost the same as they used to be a hundred years ago; except that they are a lot more complicated now.
However, the authors of the tax laws today have not been merely carrying on relics from a hundred years ago. They have been hard at work trying to give us all-new income tax deductions. For instance, whatever you donate to a charitable institution gets to be a deduction, and an important one, too. Medical expenses were granted as a valid deduction about 60 years ago. The tax laws seem to be taking mercy on us. They usually do not remove any sources of relief that we have, the way they introduce new ones.