Beginners guide to tax credit: Tax deduction for small businesses

Ideally, income should only be taxed once and account for any losses. The tax code accommodates for this by allowing taxpayers to deduct (or exclude) income which has already been taxed or should not be counted for other reasons. For example, if a taxpayer invests in a stock worth $1,000 at the beginning of the year and at the end of the year the stock is only worth $800, the taxpayer has experienced a $200 loss. The tax code allows the taxpayer to deduct the $200 as a loss, since his year-end income for that stock is $800, not the $1,000 originally invested. The tax code provides this treatment in order to accommodate for investment, risk, and losses, and account for other taxes on the same income throughout the year.