A tax-deductible expense can be subtracted from your taxable income, which reduces how much tax you owe.
What it means
A tax deduction lowers your taxable income, not your tax directly.
Example
A $1,000 deduction in the 22% bracket saves $220 in tax.
Standard vs itemized
In the 2025 tax year, the standard deduction is $15,750 for single filers and $31,500 for married filing jointly. You itemize only if your deductions exceed it.
Common deductions
Mortgage interest, state and local taxes (capped), charitable gifts and medical costs above 7.5% of income.
Deduction vs credit
A credit reduces your tax dollar for dollar.
Deduction versus credit
A deduction reduces your taxable income. A credit reduces your tax bill dollar for dollar. A 1,000 dollar deduction in the 22% bracket saves 220 dollars, while a 1,000 dollar credit saves 1,000 dollars.
Standard deduction
For tax year 2024, the standard deduction is 14,600 dollars for single filers, 29,200 for married filing jointly and 21,900 for heads of household. You take either the standard deduction or itemize, whichever is greater. About 90% of taxpayers take the standard deduction.
Common itemized deductions
- State and local taxes (SALT), capped at 10,000 dollars.
- Mortgage interest on up to 750,000 dollars of home debt.
- Charitable donations to qualified organizations.
- Medical expenses over 7.5% of adjusted gross income.
Above the line deductions
These are available even if you do not itemize, such as contributions to a traditional IRA, student loan interest up to 2,500 dollars and health savings account contributions.
Business expenses
Self employed people deduct ordinary and necessary business costs on Schedule C, and may deduct half of self employment tax.
Records
Keep receipts, bank records and acknowledgments for at least 3 years after filing, or longer in some cases such as 6 years if income is understated by more than 25%.
Charitable giving
Donations need receipts, and gifts of 250 dollars or more need written acknowledgment from the charity. Noncash donations above 500 dollars require Form 8283.
Check the rules
Tax law changes each year. Check the current IRS publications or consult a tax professional.
Types of deductions
Above the line deductions reduce adjusted gross income and are available even if you take the standard deduction. Examples include contributions to a traditional IRA, student loan interest up to 2,500 USD, educator expenses up to 300 USD and contributions to a health savings account. Itemized deductions include mortgage interest, charitable gifts, medical expenses above 7.5 percent of adjusted gross income and state and local taxes, which have been capped at 10,000 USD under the 2017 law, with later legislation changing the cap for future years, so check current rules.
Standard versus itemizing
The IRS has reported that about 90 percent of taxpayers take the standard deduction since it was nearly doubled in 2018. Itemize only if your allowed deductions exceed it. Charitable gifts need written acknowledgment for donations of 250 USD or more, and noncash donations over 500 USD require Form 8283. Keep records for at least three years. Deductions reduce taxable income, so the savings equal the deduction times your marginal tax rate. A tax professional or IRS Free File software can help determine which route saves more.
Based on data from the IRS
