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Categories: General Tax Terms

Tax Deduction

A tax deduction is an expense that can be subtracted from an individual’s or business’s total taxable income to reduce the amount of tax owed to the government. This deduction lowers the taxpayer’s taxable income, which in turn decreases their overall tax liability.

For example, if an individual earns $50,000 and qualifies for a $10,000 tax deduction, their taxable income would be reduced to $40,000. Common examples of tax deductions include mortgage interest, student loan interest, charitable contributions, and certain business expenses.

Tax deductions can be classified as either standard deductions, which are fixed amounts set by the IRS, or itemized deductions, which vary based on individual expenses. Taxpayers can choose the option that results in the lowest tax liability.

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