Definition

Noun: A tax deduction is an expense that can be subtracted from a taxpayer's gross income, thereby reducing the total amount of income that is subject to taxation. It lowers the taxpayer's taxable income, which in turn reduces the amount of tax owed.

Usage

A tax deduction is claimed on a tax return to lower the final tax bill. It is distinct from a tax credit, which directly reduces the amount of tax owed dollar-for-dollar. - Itemizing your tax deductions can be beneficial if their total exceeds the standard deduction. - Charitable donations are a common type of tax deduction.

Advanced Usage

• Above-the-line deduction: A deduction subtracted from gross income to calculate adjusted gross income (AGI). It is available even to taxpayers who do not itemize deductions.
  • Contributions to a traditional IRA are an above-the-line tax deduction.
• Itemized deduction: Specific expenses that are listed individually on a tax return, as opposed to taking the standard deduction.
  • Mortgage interest and state taxes paid are often claimed as itemized tax deductions.

Variants and Related Words

• Deductible (adj): Able to be deducted, especially from taxable income.
  • Business expenses are deductible.
• Tax write-off (n, informal): A common informal synonym for a tax deduction.
  • The home office can be a significant tax write-off.

Synonyms

• Allowance (in specific tax contexts)
• Exemption (historically used, though modern tax law often distinguishes between deductions and exemptions)

Related Phrases

• Standard deduction: A fixed dollar amount that reduces the income on which you are taxed. It is an alternative to itemizing deductions.
  • For simplicity, many taxpayers choose the standard deduction over itemizing their tax deductions.
• Tax-deductible expense: An expense that qualifies as a tax deduction.
  • Keep receipts for all tax-deductible expenses.

Noun

1. a reduction in the gross amount on which a tax is calculated; reduces taxes by the percentage fixed for the taxpayer's income bracket