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Home> Income Tax Guide

Tax Deduction

Tax deduction or tax-deductible expense affects a taxpayer's income tax. A tax deduction represents an expense incurred by a taxpayer. There are variable items that you can subtract, or deduct, from your gross income. It is subtracted from gross income when the taxpayer computes his income taxes. As a result, the tax deduction will lower overall taxable income and thus lower the amount of tax paid. The exact amount of tax savings is dependent on taxpayer's tax rate.

A tax credit is a similar concept to lower tax, but is different in that it reduces the tax owed, rather than reducing taxable income. So the amount of tax savings is not dependent on the rate the taxpayer pays.

There are many different tax deduction items. Each deduction has its own particular requirements and may depend on the taxpayer's filing status, income, and other factors. You should always find ways to maximize your "above the line" tax deduction.