Taxes

What Is a Tax Deduction?

A tax deduction is an amount subtracted from income before tax is calculated, which lowers taxable income. Its value depends on the taxpayer's marginal tax rate: a 1,000 deduction saves about 220 for someone in a 22% bracket. Deductions differ from tax credits, which reduce the tax bill directly.

Types

In the US, some deductions reduce adjusted gross income (above-the-line), while others are taken as either the standard deduction or itemized deductions.

Example

Taxable income of 50,000 with a new 2,000 deduction falls to 48,000; the tax saved is 2,000 × the marginal rate.

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🔗 Related Terms

Tax Credit Standard Deduction Itemized Deductions Marginal Tax Rate Progressive Tax

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Last updated: September 27, 2026. This definition is for general educational purposes only. It is not financial, investment, tax, legal, or medical advice, and it does not recommend any product or course of action. For decisions about your own situation, consult a qualified professional.