tax deduction


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Tax deduction

An expense that a taxpayer is allowed to deduct from taxable income.

Deduction

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.

tax deduction

See deduction.

tax deduction

An expense allowed as a reduction of taxable income.The most common individual deductions are for home mortgage interest,ad valorem and sales taxes,moving expenses associated with a job, charitable giving, and health-care costs. Virtually all expenses associated with income-producing property are deductible, including noncash expenses such as depreciation. Virtually all operating expenses for a business are deductible, except that capital expenditures (a new roof, expansion of building, purchase of equipment) must be capitalized and depreciated over time unless falling within the Section 179 limits. Section 179 lets a taxpayer deduct as expenses certain things that would otherwise have to be capitalized.

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