What is a tax deduction?

A deduction is an expense that a taxpayer can use to reduce their gross income, thereby reducing the overall taxes they pay. The IRS allows for a variety of deductions that individuals can use to reduce their gross income.

How do tax deductions work?

Tax deductions are subtracted from your taxable income, thereby lowering the amount of tax you owe. You can choose the standard deduction or itemize your deductions on Schedule A of Form 1040 or 1040-SR. The Tax Cuts and Jobs Act (TCJA) nearly doubled the standard deduction and improved several tax deductions.

What is the difference between a tax credit and a deduction?

In short, a tax credit gives you a dollar-for-dollar reduction in the amount of tax you owe. A tax deduction, also sometimes called a tax write-off, provides a smaller benefit by allowing you to deduct a certain amount from your taxable income.