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Income Tax > Tax > Tax Deduction Tax Deduction A tax deduction or a tax-deductible expense represents an expense incurred by a taxpayer that is subtracted from gross income and results in a lower overall taxable income.
The U.S. income tax system is progressive; as taxable income rises, a higher percentage is charged on a tiered system.
Because tax deductions reduce taxable income, and taxes owed are a percentage of taxable income, then tax deductions offer a fractional reduction in taxes owed. I.e., tax deductions do not reduce taxes owed on a dollar for dollar basis. Tax credits, however, do.
The U.S. tax code is filled with tax deductions; some are aimed at individuals, while many are aimed at businesses. The totality of the tax deductions that Congress has instituted over more than seven decades has greatly contributed to the tax code being viewed by most as needing a tremendous overhaul.
Additional Links:
Tax Exemption
Tax Credit
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