Deduction

A deduction is an amount that the Internal Revenue Service allows taxpayers to subtract from their adjusted gross income to calculate their taxable income. Deductions include the standard deduction, which is a set amount granted to taxpayers based on their filing status, age, and if they are blind. The standard deduction is not tied to the spending of the taxpayer.

Deductions also include itemized deductions, which is a variable amount in various defined categories and based on the actual amount a taxpayer spends in that category during the tax year.

In any given tax year, a taxpayer must choose to use the standard deduction or itemized deductions, whichever gives the taxpayer the lowest tax liability.