Tax Deduction
An amount that reduces taxable income before any rate is applied. Mortgage interest, retirement contributions, charitable gifts, and state and local taxes paid are common ones.
Often confused with
- Deduction
- A pay stub deduction reduces the paycheck; a tax deduction reduces taxable income on a return.
- Tax Credit
- A deduction shrinks the income a rate is applied to; a credit subtracts straight from the tax owed, so a dollar of credit is worth more.
Taught in
See also
5.1.B.3