American Institute of Certified Planners (AICP) Practice Exam

What is a tax write-off?

1. A penalty for underpayment of taxes

2. A compensation for lost income

3. Incentives provided by governments to attract economic development

4. A refund of overpaid taxes

The correct answer is: Incentives provided by governments to attract economic development

A tax write-off refers to expenses that a taxpayer can deduct from their total taxable income, reducing the amount of income that is subject to taxation. The correct answer describes incentives provided by governments to attract economic development, which can encompass specific tax deductions or allowances aimed at fostering growth in certain areas. These incentives can take various forms, such as tax credits for businesses that create jobs or deductions for expenditures related to development projects. By effectively reducing the taxable income for businesses or individuals, these incentives encourage investment and activity that may benefit the local economy. Businesses are more likely to engage in economic development when they can offset some of their costs through tax benefits, creating a win-win situation for both the government and the business community.