Tax Deduction

A tax deduction is an expense that you can deduct from your total Taxable Income to reduce the amount of income that is subject to tax. Tax deductions lower your Taxable Income, thereby potentially lowering your overall tax bill.

Examples:

• Mortgage Interest: Homeowners can deduct the interest paid on their mortgage, which can significantly reduce Taxable Income.
• Charitable Contributions: Donations made to qualifying charitable organizations can be deducted from your Taxable Income.
• Medical Expenses: Certain unreimbursed medical expenses exceeding a specific percentage of your adjusted Gross Income (AGI) may be deductible.

Cases:

• Case 1: A taxpayer with a Gross Income of $70,000 who has $10,000 in deductible expenses would have a Taxable Income of $60,000.
• Case 2: A business owner who spends $15,000 on equipment that qualifies for deduction can subtract that amount from their business income, reducing their Taxable Income for the year.