How does a tax deduction lower your taxable income?

A tax deduction lowers your taxable income, reducing how much of your income is subject to tax. The lower your taxable income, the lower your tax bill. The IRS allows taxpayers to lower their taxable income by choosing either the standard deduction or itemized deductions.

How do tax deductions work?

By lowering your income, deductions lower your tax. You need documents to show expenses or losses you want to deduct. Your tax software will calculate deductions for you and enter them in the right forms. If you file a paper return, your deductions go on Form 1040 and may require extra forms.

How can I reduce my taxable income?

You may be able to reduce your taxable income by maximizing contributions to retirement plans and health savings accounts. Tax-loss harvesting, asset location, and charitable giving are other tax strategies to consider to potentially lower your tax bill. If your wages have risen this year along with inflation, that's good news.