Interesting Tax Facts: Unusual Deductions, Levies, and Credits Around the World
Explore how different countries approach taxation with surprising deductions, unique levies, and unconventional credits that reveal cultural and economic priorities.
Taxes are a part of everyday life, but beyond the familiar income and sales taxes, there’s a world of surprising rules. Some countries allow deductions for unexpected expenses, while others impose taxes on items or activities that seem unusual. These tax policies often reflect local culture, history, or economic priorities.
Understanding these lesser-known aspects of taxation highlights how governments manage revenue and influence behavior, revealing how different societies value certain goods, services, and lifestyles.
Uncommon Deductions
While standard deductions are well-known, tax codes sometimes allow for less common write-offs, particularly for specific medical needs or business activities, provided circumstances are documented to meet Internal Revenue Service (IRS) requirements.
Medical expenses offer potential for unusual deductions beyond routine costs. Capital expenses for home improvements primarily for medical care, such as installing ramps or modifying bathrooms for accessibility, can qualify. The deductible amount depends on whether the improvement increases the home’s value; if it does, only the cost exceeding the value increase is deductible. Costs for operating and maintaining medically necessary equipment, even in a rented home, may also qualify, as can expenses for inpatient treatment at therapeutic centers for addiction, including meals and lodging. All medical expense deductions are subject to an adjusted gross income (AGI) threshold, deductible only to the extent they exceed 7.5% of AGI.1Internal Revenue Service. Publication 502, Medical and Dental Expenses
Expenses for service animals, such as guide dogs for individuals with disabilities, can also be treated as medical expenses. This includes the costs of buying, training, and maintaining the animal (food, grooming, veterinary care). Emotional support animals generally do not qualify unless they meet specific IRS criteria for service animals. Separately, animals used for business, like guard dogs or animal actors, may generate deductible business expenses. Unreimbursed costs for fostering animals for qualified charities might also be deductible as charitable contributions.
Certain business expenses, while perhaps seeming unusual, are permissible if they are ordinary and necessary for the trade or business. For self-employed individuals, this can include membership dues for professional organizations or costs for training that maintains or improves job skills. While the Tax Cuts and Jobs Act of 2017 eliminated many miscellaneous itemized deductions for employees, self-employed individuals continue to deduct business expenses directly against business income, allowing for a potentially broader range of deductions.
Surprising Commodity Taxes
Governments often impose excise taxes on specific goods beyond common targets like fuel and alcohol. These taxes, levied on the sale or use of particular items based on weight, volume, or value, can serve to generate revenue or discourage consumption. While federal excise taxes cover items like fishing equipment, many surprising examples occur at the state or local level.
Food and beverages considered unhealthy are frequent targets. Taxes on sugar-sweetened beverages exist in various jurisdictions, sometimes applied per ounce or based on sugar content. Certain items like candy may face higher sales tax rates than other groceries. Defining “candy” for tax purposes can involve complex distinctions based on ingredients, refrigeration needs, or size, affecting whether an item qualifies for lower tax rates applied to essential groceries.
Other specific commodities have faced unique taxes historically. Playing cards were once subject to a federal excise tax in the United States, repealed in 1965. While this federal tax is gone, the history shows how everyday items can be singled out. Some local jurisdictions might still tax such goods or related activities like amusement devices.
Odd Levies from Various Regions
Governments sometimes employ levies tied to specific circumstances, activities, or even physical characteristics, reflecting unique societal values or local needs. These differ from broad income or sales taxes. Historical examples include taxes based on architectural features, like the window and fireplace taxes in 17th-19th century Europe, intended as a proxy for wealth. These levies famously led property owners to brick up windows to reduce their tax burden. Similarly, a 16th-century building tax in Amsterdam based on facade width is thought to have influenced the city’s narrow house architecture.
Levies can also relate to specific activities or statuses. Missouri briefly imposed a “bachelor tax” in 1820 to encourage marriage. More commonly today, taxes apply to certain forms of entertainment like admissions to racetracks or casinos. Some locations tax live performances or distinguish between activities like tethered versus untethered hot-air balloon rides based on whether they are considered amusement or transportation.
Specific fees can be tied to public services or environmental concerns. Some European nations have levies on cattle owners related to methane emissions. Elsewhere, fees might fund infrastructure or environmental programs, such as those assessed for large-scale earth moving. Compulsory levies collected from producers in specific agricultural sectors often fund industry research, marketing, or biosecurity programs, representing collective investment directed by the industry itself but implemented via government authority.
Certain levies target specific professions or income earned under particular circumstances. The “jock tax” used by many U.S. cities and states applies standard income tax principles to non-resident athletes and entertainers earning income within that jurisdiction. Other unique levies might include taxes on music performing rights or specific fees for professional licensing.
Unusual Credits and Exemptions
Tax systems also feature credits and exemptions that are less widely known. Credits directly reduce tax owed, while exemptions exclude certain income from taxation, both serving to provide relief or incentivize specific activities.
Specific credits encourage certain behaviors or ease financial burdens. The federal government offers a nonrefundable tax credit for qualified adoption expenses, covering costs like adoption fees and travel, up to a certain limit per child ($16,810 for 2024), phasing out at higher incomes. Unused credit can be carried forward. The Residential Clean Energy Credit allows homeowners a credit (generally 30% through 2032) for investing in renewable energy systems like solar or wind power for their homes, with generally no annual dollar limit except for fuel cell property.2ENERGY STAR. Federal Tax Credits for Energy Efficiency
Beyond credits, certain income types or entities enjoy tax-exempt status. Interest income from municipal bonds issued by state and local governments is typically exempt from federal income tax and potentially state tax. Organizations operating for religious, charitable, or educational purposes under Internal Revenue Code Section 501(c)(3) are generally exempt from federal income tax on related earnings. Other exemptions might apply to specific government payments or portions of disability payments. Some foreign-earned income for U.S. citizens meeting residency tests may be excluded up to a limit ($126,500 for 2024).
State governments often implement unique credits and exemptions tailored to local goals, such as encouraging job creation, investment in specific industries, or historic preservation. These state-level provisions add another layer of complexity and opportunity.
Unexpected Withholding Insights
Tax withholding extends beyond regular paychecks to encompass various income types, ensuring taxes are collected throughout the year. This “pay-as-you-go” system can apply to pensions, bonuses, commissions, and gambling winnings.3Internal Revenue Service. Publication 505, Tax Withholding and Estimated Tax
Payments from pensions and annuities often have specific withholding rules. Recipients typically use IRS Form W-4P to specify withholding for periodic payments.4Internal Revenue Service. Form W-4P, Withholding Certificate for Periodic Pension or Annuity Payments Without this form, payers usually withhold based on a default status. For nonperiodic payments or eligible rollover distributions, Form W-4R applies. Rollover distributions paid directly to the recipient face mandatory 20% withholding. For other nonperiodic payments, the default rate is 10%, but recipients can elect a different rate using Form W-4R.
Other payments, often reported on Form 1099 series returns, can be subject to backup withholding at a flat 24% rate.5Internal Revenue Service. Backup Withholding This typically occurs if the recipient fails to provide a correct Taxpayer Identification Number (TIN) or if the IRS notifies the payer of previous underreporting. Payers request TINs using Form W-9. Backup withholding can apply to payments like interest, dividends, rents, nonemployee compensation, and payments via card networks. Gambling winnings reported on Form W-2G may also be subject to backup withholding if regular gambling withholding (also 24%, applied when winnings exceed certain thresholds) doesn’t apply and the winner lacks a correct TIN. Any withheld amount is reported and claimed as a credit on the recipient’s tax return.
Withholding rules differ for payments to non-resident aliens and foreign entities. Generally, a withholding agent must withhold tax at a 30% rate on certain U.S. source income paid to foreign persons, unless a tax treaty provides a lower rate or exemption. Foreign recipients use forms like W-8BEN to certify their status and claim treaty benefits. These distinct rules underscore the complexity of cross-border payments.