What is the difference between adjustment, subtraction, deduction, exemption in tax forms?

Question

In US federal tax 1040 form, there is "adjustment" on the bottom of the first page at line 36, "itemized deduction" at line 40 on the second page, and "exemptions" at line 42 on the second page. "adjustment", "deduction" and "exemption" all seem to me the parts of income that are not taxable. But what are the differences between the meanings of the three, in tax reporting?

In Maryland tax 502 form, there is "subtraction" at line 15, "deduction" at line 17 and "exemption" at line 19, all on the first page. I was also wondering what their differences are?

Thanks and regards!

Answer 1

Think about what the words actually mean. The tax meaning is pretty much the same.

Deductions are adjustments to your income for meeting certain conditions. Subtractions usually mean that your tax liability is reduced by a certain amount, but reduce your income below zero.

Exemptions are like deductions, but aren't based on you meeting a condition. Usually for income tax, this is income that by its nature is disqualified from consideration. For example, income earned while living in another state is generally (but not always) exempt from taxation. Or taxes paid to another governmental body.