A deduction is an eligible expense or allowable amount that can be subtracted from gross income to reduce taxable income, ultimately lowering the amount of tax owed.
Common deductions include mortgage interest, charitable donations, student loan interest, and medical expenses. Taxpayers can either claim a fixed standard deduction or choose to list individual deductions separately, depending on which option results in a greater tax benefit. Deductions are an important way for individuals and businesses to reduce tax liability by recognising essential or incentivised expenses.
Accurate records and receipts are crucial for properly claiming deductions and ensuring compliance if the tax return is reviewed or audited.