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An expense that is allowable as a reduction of gross taxable income by the IRS e.g., charity donations.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.


An amount of money that one may subtract from one's gross annual income when calculating one's income tax liability. A common misconception about tax deductions is that they represent a dollar-for-dollar reduction of one's tax liability. Rather, a deduction removes a certain dollar amount from the income the IRS uses to calculate the percentage of one's income that is owed in taxes. Common deductions are charitable contributions, business expenses, and interest on mortgages. See also: Tax credit.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved


An expenditure that may legally be used to reduce an individual's income-tax liability. Potential deductions of particular interest to investors are expenditures for subscriptions to financial publications, a lock box for storing securities, and computer software for investment-related activities. These deductions, combined with employee business expenses and miscellaneous deductions, may be subtracted from a person's taxable income only to the extent their total exceeds 2% of that person's adjusted gross income. Interest paid on loans used to finance investments is deductible only against investment income. Also called itemized deduction, tax deduction. See also charitable contribution deduction.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.


A deduction is an amount you can subtract from your gross income or adjusted gross income to lower your taxable income when you file your income tax return.

Certain deductions, such as money contributed to a traditional IRA or interest payments on a college loan, are available only to taxpayers who qualify for these deductions based on specific expenditures or income limits, or both.

Other deductions are more widely available. For example, you can take a standard deduction, an amount that's fixed each year. And if your expenses for certain things, such as home mortgage interest, real estate taxes, and state and local income taxes, total more than the standard deduction, it may pay for you to itemize deductions instead.

However, if your adjusted gross income is above the limit Congress sets for the year, you may lose some of or all these deductions.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.


An amount that may be subtracted from income that is otherwise taxable.
Copyright © 2008 H&R Block. All Rights Reserved. Reproduced with permission from H&R Block Glossary
References in periodicals archive ?
If the taxpayer is counting on deducting the interest, the taxpayer can easily manipulate the number of personal-use days.
Most intangible assets are expected to benefit more than one year, so their cost is a capital expenditure under Internal Revenue Code section 167 (depreciation), the primary authority for deducting intangibles.
Authority and limited guidance for deducting the costs of most intangibles are found in Treasury regulations.
As to deducting interest on unsecured claims, the IRS contended that because of the debtor's financial condition, "full payment of principal let alone interest will not be made to ...
1955), in support of deducting interest on accrued debt.
469(a) prohibits him from deducting the management fee expenses of the entities for 1993 and 1994 from his related management fee income for those same years.
As a result, taxpayers deducting their loan origination costs must continue to employ their current accounting methods.
Generally, stock basis includes amounts that a shareholder has loaned to an S corporation for which he is "at-risk." Thus, if a shareholder has loaned money to an S corporation and he is "at-risk," he can use the loan as basis for deducting losses passed through from the corporation.
If combined, the disposition probably would not satisfy the disposition of "substantially all" of an activity for deducting suspended passive losses.
Individual taxpayers residing in the Fourth, Sixth, Eighth and Ninth Circuits are barred from deducting deficiency interest; the issue is more uncertain for taxpayers in other circuits.