What are tax deductions?

Tax deductions are essentially items or costs the IRS allows to reduce your taxable income on your tax return. Put simply, tax deductions lower the amount of money you must pay taxes on.A tax deduction is also referred to as a tax write-off. This is because you can “write off” or subtract these amounts from your personal taxable income.

Do tax deductions reduce taxable income?

Remember, tax deductions only reduce taxable income. The good news is you don’t have to choose between tax deductions or credits. If eligible, you can receive both tax credits and deductions to help lower your overall tax obligation. There are several tax credits available to you if you qualify, ranging from education to energy-saving items.

How are tax deductions different from tax credits?

Deductions are different from tax credits. Tax credits directly cut your tax bill by reducing the actual taxes owed. Both contribute to lowering your tax liability. This guide will cover the basics of how tax deductions work. We’ll discuss how they can benefit you and how you can use them to your advantage.