Tax deduction

A tax deduction is an expense that a taxpayer is allowed to subtract from their taxable income when calculating their tax liability. Tax deductions reduce a taxpayer's taxable income, which in turn reduces the amount of tax that they owe. There are two main types of tax deductions: above-the-line deductions and below-the-line deductions. Above-the-line deductions are deductions that a taxpayer can claim regardless of whether they itemize their deductions or take the standard deduction. Examples of above-the-line deductions include certain business expenses and certain types of retirement contributions.