Tax Deduction

A tax deduction reduces your taxable income by the amount of the deduction. The actual tax savings depends on your marginal tax bracket. A $1,000 deduction for someone in the 22% bracket saves $220 in taxes, while the same deduction in the 37% bracket saves $370.

Common tax deductions include mortgage interest, state and local taxes, charitable donations, student loan interest, health savings account contributions, and business expenses. Some deductions are above-the-line (available regardless of whether you itemize) while others are below-the-line (only available if you itemize).

Maximizing tax deductions requires planning and documentation. Keep detailed records of deductible expenses, contribute to tax-advantaged accounts before year-end, and consider bunching deductions in alternating years if you are near the standard deduction threshold. Working with a tax professional can identify deductions you might otherwise miss.