Tax Deduction

A tax deduction is a provision in the tax code that reduces a person’s taxable income, or the amount of income used to calculate how much tax they owe. Taxpayers can choose to receive a standard tax deduction or take itemized deductions.

The government determines the standard deduction amount based on factors like the taxpayer’s income, age, and filing status. Itemized deductions are determined by taxpayer's expenses listed on Schedule A of Form 1040. Items eligible to be itemized include medical and dental expenses, state and local taxes, and gifts to charity.

A tax deduction is different from a tax credit. A tax deduction reduces taxable income, while a tax credit directly reduces the amount of tax a person owes or increases the tax refund they receive.