How do tax loopholes differ from legitimate tax deductions

Tax loopholes are gaps or provisions in tax law that allow individuals or companies to reduce their tax liability in unintended ways. Many loopholes are unintended consequences of legislation that lawmakers didn't foresee. Examples include the carried interest loophole for hedge fund managers and backdoor Roth IRAs for high-income individuals[1][2].

In contrast, legitimate tax deductions are intended by lawmakers to provide tax benefits to taxpayers. Deductions reduce your taxable income, thereby lowering your tax bill. Examples include the standard deduction, mortgage interest deduction, and deductions for charitable donations[2][4].

While loopholes are legal, the IRS views many as "abusive" because they enable wealthy taxpayers to avoid paying their fair share. The IRS is working to close loopholes that they estimate could raise over $50 billion in additional revenue over the next decade[1].

Deductions, on the other hand, are intentional provisions in the tax code designed to provide tax relief to individuals and businesses. They are not considered loopholes or abusive tax avoidance strategies.

In summary, legitimate tax deductions are intended tax benefits, while tax loopholes are unintended gaps in the law that some use to minimize taxes in ways lawmakers didn't foresee. The IRS is cracking down on abusive loopholes while maintaining legitimate deductions.