Fradragsværdi

Fradragsværdi is the monetary value of a tax deduction. It represents how much a taxpayer saves in taxes because they can deduct a cost from their taxable income. In a typical progressive tax system, fradragsværdi is approximately equal to the amount of the deduction multiplied by the marginal tax rate that applies to the taxpayer’s income. For example, a deduction of 10,000 DKK with a marginal tax rate of 37% yields a fradragsværdi of about 3,700 DKK. If the deduction moves the taxpayer into a different tax bracket, the value may be piecewise.

The concept helps compare different deductible expenses on a common scale and is a planning tool for evaluating whether a deduction is worth pursuing. It is important to note that fradragsværdi is a theoretical measure of tax saving at a given income level and may not correspond exactly to cash flow in every case.

Caveats include that some deductions can affect other charges such as social contributions, or are subject to caps and phase-outs. There are also tax credits, which directly reduce tax liability rather than reducing taxable income, and these have a different value. Because tax regimes differ and rates and thresholds change, the exact fradragsværdi can vary with time and personal circumstances.

In Denmark, fradragsværdi is commonly used in tax discussions to illustrate how much benefit a deduction provides. The general principle remains: higher marginal tax rates yield greater fradragsværdi per unit of deduction.