What is a Tax Deduction?

  • Tax

A tax deduction reduces the amount of income that is subject to taxation. It allows individuals and businesses to lower their taxable income by subtracting eligible expenses from total earnings. Common deductions include mortgage interest, charitable donations, medical expenses, and business-related costs.

For businesses, deductions might cover expenses such as office rent, equipment, travel, and professional fees. Accurate record-keeping is critical because every deduction must be supported by receipts or documentation in case of an audit.

By claiming deductions, taxpayers effectively reduce their overall tax bill. For example, if a business earns $100,000 and claims $20,000 in deductions, it only pays tax on $80,000. Understanding which deductions apply to your situation can lead to significant savings. Consulting a tax professional helps ensure compliance and maximizes the benefit of available deductions while staying within IRS guidelines.

R&D Offer Quiz

Step 1 of 3

Answer to find out if you're eligible for R&D tax credits.

Do the activities performed relate to a new or improved business component’s function, performance, reliability, quality, or composition?(Required)
For Example: A mid-sized packaging company develops a slightly modified cardboard box design to improve its stacking strength (reliability) for warehouse storage, involving minor adjustments to the corrugation pattern to reduce collapse under standard weight loads.
Is your company trying to discover information to eliminate uncertainty concerning the capability or method for developing or improving a business component?(Required)
For Example: A furniture manufacturer investigates whether a cheaper wood adhesive can hold joints as effectively as the current one during assembly, testing bond strength to resolve doubts about its capability in standard production lines.
Do the activities performed constitute a process of experimentation?(Required)
For Example: An auto parts supplier runs a series of bench tests on different lubricant formulations to find one that reduces friction in engine bearings more effectively, systematically comparing wear rates over simulated operating cycles.