UK Accounting Glossary
A tax deduction is a provision in the U.S. tax code that allows individuals and businesses to subtract certain expenses from their taxable income, thus reducing their tax liability. State and federal tax law allow taxpayers to claim a tax deduction for a variety of reasons. Perhaps the most common tax deduction is the personal exemption. Family members (i.e. spouse, dependents such as children or relatives, head of a household, etc.) also have an associated tax deduction. Mortgage and equity loan expenses can be claimed as a tax deduction. Education expenses, some moving expenses, some job search expenses, contributions to charity, and capital losses can be claimed as a tax deduction. For businesses, start-up expenses, some office expenses, depreciation of business assets, and business-related travel expenses can be claimed as a tax deduction. Taxpayers who qualify for multiple deductions and claim every tax deduction available to them might move themselves into a lower tax bracket, which lowers the percentage of income they pay in taxes. A tax deduction is distinct from a tax credit, which directly reduces the tax amount itself rather than taxable income.
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This glossary post was last updated: 5th February 2020.