Tax Deduction

Tax deduction summary:

• A tax deduction is an expense you can subtract from your income to reduce the amount of tax you owe the IRS.

• The amount of savings you get from a tax deduction depends on your income level and tax bracket.

• At tax time, you can reduce your taxable income using the standard deduction or itemized deductions. You could itemize your deductions if it gets you a better result than the standard deduction, which is the same for everyone.

Tax deduction definition and meaning

A tax deduction is an expense you can subtract from your income to reduce the amount of tax you have to pay the IRS. All tax filers are eligible for a standard deduction. That’s one big deduction that’s the same for all taxpayers of a particular filing status. 

You also have the option of itemizing your deductions. There are many expenses that could legally reduce your taxable income. If your list of legal deductions comes out to a number that’s bigger than the standard deduction, it could make sense itemize. 

At Achieve, we’re not tax professionals. It’s a good idea to talk to a registered tax advisor about your situation. If you don’t know one, use the IRS’s lookup tool. 

Key concept: A deduction is an expense you can subtract from your income to reduce the amount of tax you owe the IRS.

Tax deduction: a comprehensive breakdown

A tax deduction reduces your total tax bill by letting you subtract certain expenses from your taxable income. The value of a tax deduction and its savings will depend on your tax bracket. The tax bracket you’re in is based on how much you earn. 

The U.S. tax system has a series of steps for different income levels, called brackets. Each part of your income is taxed at its own rate, and only the top portion is taxed at the higher rate—not all of your money. The more money you earn, the higher your tax bracket. This means the extra money you make gets taxed at a higher rate, not all of your income.

Let’s say you’re eligible for a $1,000 tax deduction and you’re in the 24% tax bracket. That means that $1,000 deduction could save you $240 on your taxes. If you were in the 35% tax bracket, that same tax deduction would be worth $350. That’s why tax deductions are usually worth more to higher earners in higher tax brackets than to lower earners in lower brackets.

Types of tax deductions

There are two main types of tax deduction:

• Standard. This is a fixed deduction all tax filers are eligible for each year. The amounts are different for single tax filers and for  married couples who file a joint return.

• Itemized. The IRS allows you to write off expenses that are unique to you on your taxes. You can itemize deductions instead of taking the standard deduction if that results in a larger tax break.

When you file your taxes, you can either take the standard deduction or you can itemize your deductions—not both. 

In 2025, the standard deductions are:

Source: Fidelity Investments

Examples of tax deductions

Any deduction you claim on your taxes has to be allowed by the IRS. If you're not sure, it's best to ask an accountant or tax professional. Here are some examples of tax deductions the IRS lets people take:

• Donations to charity

• Interest on student loans

• IRA contributions

• Medical expenses (if they exceed a certain percentage of your income)

• Mortgage interest 

• State and local taxes, including income and property taxes

• Business expenses if you're self-employed

Home office expenses if you're self-employed and work from home