A deduction from one's taxable income as the result of a specific expense the taxpayer has had over the course of the tax year. Most medical expenses, for example, may be deducted from one's taxable income. The same is the case for interest on mortgages and business expenses. The IRS allows itemized deductions as an alternative to the standard deduction, which takes a flat amount out of one's taxable income. Itemized deductions are subject to certain restrictions; for example, some expenses must exceed a certain percentage of the adjusted gross income to be deductible.
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Certain personal expenditures allowed by the tax Code as deductions from adjusted gross income. Examples are certain medical expenses, qualified interest on home mortgages, and charitable contributions. Itemized deductions are reported on Schedule A, Form 1040. A taxpayer who itemizes deductions may not claim the standard deduction.
Copyright © 2008 H&R Block. All Rights Reserved. Reproduced with permission from H&R Block Glossary