Benefits Received Rule
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Definition of 'Benefits Received Rule'1. A theory of income tax fairness that says people should pay taxes based on the benefits they receive from the government.2. A tax provision that says a donor who receives a tangible benefit from making a charitable contribution must subtract the value of that benefit from the amount claimed as an income tax deduction. |
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Investopedia explains 'Benefits Received Rule'1. The appeal of the benefits received rule is its apparent fairness - those who benefit from a service should be the ones who pay for it. This is not how the tax system works in the United States. The U.S. tax system is a "progressive" or "ability-to-pay" system, meaning that those who make more money tend to pay taxes at a higher rate and those who make less money tend to pay taxes at a lower rate or even receive taxpayer-funded benefits while paying no taxes at all. Another alternative is a flat tax system in which everyone pays the same tax irrespective of income.2. Under the benefits received rule, if Jane bought a $500 ticket to a nonprofit fundraising gala and received a dinner worth $100, she could only claim $400 as a tax deduction. |
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