A tax deduction reduces the income the IRS taxes you on

A tax deduction is an amount of money you subtract from your total income before calculating how much tax you owe. The IRS lets you deduct certain expenses and costs — things you spent money on during the year. When you reduce your income on your tax return, you reduce the amount that gets taxed, which means you owe less in taxes overall.

Think of it this way: if you earned $50,000 and had $10,000 in deductions, the IRS taxes you on $40,000 instead. The difference between what you earned and what you deduct is called your taxable income. The lower your taxable income, the lower your tax bill.

You do not have to itemize every deduction or prove you deserve one. The IRS has already decided which expenses count as deductions. Your job is to know which ones explore to you, keep records of what you spent, and report them on your tax return.

Key Takeaways

  • Deductions reduce the income amount the IRS taxes, which lowers your total tax bill.
  • You can either take the standard deduction (a fixed amount based on your filing status) or itemize deductions (add up may have access to expenses yourself).
  • Common deductions include mortgage interest, state and local taxes, charitable donations, and certain business expenses.
  • You need receipts, bank statements, or written records to back up the deductions you claim on your return.
  • Most people benefit from the standard deduction because it is simpler and often larger than what they would get by itemizing.

Standard deduction versus itemizing deductions

You have two paths: take the standard deduction or itemize your deductions. You pick one or the other, not both.

The standard deduction is a fixed dollar amount the IRS sets each year based on your filing status (single, married filing jointly, head of household, and so on). For 2024, the standard deduction ranges from $14,600 for a single filer to $29,200 for married couples filing jointly. These amounts change each year. You straightforward claim this amount and move on — no receipts needed, no list of expenses to track.

Itemizing means you add up all your may have access to expenses yourself and report that total instead of the standard deduction. You only itemize if your total deductions are larger than the standard deduction. For example, if you are married filing jointly and your itemized deductions add up to $35,000, you would itemize because $35,000 is more than the $29,200 standard deduction. But if they only add up to $20,000, you would take the standard deduction instead.

Most people take the standard deduction because it is simpler and because their actual expenses do not add up to more than the standard amount. Itemizing makes sense mainly if you own a home with a large mortgage, live in a high-tax state, or have significant charitable donations.

Common deductions you can itemize

If you choose to itemize, these are the expenses the IRS allows you to deduct:

  • Mortgage interest: The interest portion of your monthly mortgage payment (not the principal). You report this on Schedule A.
  • State and local taxes (SALT): Income taxes, sales taxes, or property taxes you paid to your state or local government. The total is capped at $10,000 per year.
  • Charitable donations: Money or goods you gave to may have access to charities, religious organizations, or nonprofits. You need a receipt or written acknowledgment from the organization.
  • Medical and dental expenses: Out-of-pocket costs for doctors, dentists, prescriptions, and medical equipment — but only the amount that exceeds 7.5 percent of your adjusted gross income.
  • Casualty losses: Damage to your home or property from a sudden event like a fire, theft, or natural disaster — but only the amount exceeding $100 per incident and 10 percent of your adjusted gross income combined.

Each of these has specific rules about what counts and what does not. For instance, you cannot deduct health insurance premiums you pay yourself if you are self-employed (you use a different deduction for that). You cannot deduct the full cost of medical expenses — only the portion above the threshold. The IRS publishes detailed guidance on each category.

Deductions for self-employed people and business owners

If you run your own business or are self-employed, you can deduct business expenses from your income. These are costs you paid to earn that income. Common business deductions include office supplies, equipment, vehicle mileage, home office rent or mortgage interest, professional fees, and health insurance premiums you pay yourself.

You report these on Schedule C (Profit or Loss from Business) if you are a sole proprietor, or on the appropriate form for your business structure. The key rule is that the expense must be ordinary and necessary for your business — meaning it is a normal cost in your industry and it relates directly to earning income.

Self-employed people also deduct half of their self-employment tax, which is a separate line on Form 1040. This is not an itemized deduction; it reduces your adjusted gross income before you even decide whether to itemize.

What you cannot deduct

The IRS does not allow deductions for personal expenses, even if you spent money on them. You cannot deduct groceries, gas for your car (unless it is a business vehicle), clothing, entertainment, or gym memberships. You cannot deduct federal income taxes you paid, and you cannot deduct the principal portion of a mortgage payment (only the interest).

You also cannot deduct expenses you already claimed as a credit on your return. For example, if you claim the Earned Income Tax Credit, you cannot also deduct those same expenses. The IRS does not let you benefit twice from the same dollar.

Fines and penalties are not deductible, nor are political contributions or lobbying expenses. If you are unsure whether something counts, the IRS website has a searchable database of deductible and non-deductible items, or you can consult Publication 17 (Your Federal Income Tax), which is free.

How to document your deductions

The IRS does not require you to attach receipts to your tax return, but you must keep them for your records. If the IRS audits your return, you will need to show proof that you actually spent the money you claimed. A receipt, bank statement, credit card statement, or written record from the organization you donated to all count as proof.

For charitable donations over $250, you need a written acknowledgment from the charity — a letter or receipt stating the amount and whether you received anything in return. For vehicle mileage, keep a log or use a mileage tracking app that records the date, distance, and business purpose of each trip.

Keep these records for at least three years after you file your return. The IRS can audit returns from the past three years in most cases, and longer if they suspect underreporting of income. Organize your records by category (medical, charitable, mortgage interest, and so on) so you can find them quickly if you need them.

When deductions save you the most money

The value of a deduction depends on your tax bracket. If you are in the 22 percent tax bracket, a $1,000 deduction saves you $220 in taxes. If you are in the 12 percent bracket, the same deduction saves you $120. Higher earners in higher tax brackets get more value from each deduction.

This is why itemizing makes more sense for some people than others. A homeowner with a $400,000 mortgage and $15,000 in property taxes might have $25,000 in itemized deductions, which is well above the standard deduction. A renter with no mortgage and modest charitable giving might only have $5,000 in deductions, so the standard deduction is the better choice.

Some people are right on the edge. If your itemized deductions are close to the standard deduction amount, small changes — like bunching charitable donations into one year instead of spreading them across two — can push you over the threshold and make itemizing worthwhile.

Frequently Asked Questions

Can I take both the standard deduction and itemize deductions?

No. You must choose one or the other on your tax return. The IRS will not let you claim both. Most tax software automatically calculates which option gives you a larger deduction and uses that one, but you can override it if you have a reason to.

Do I lose deductions if I do not itemize?

You do not lose deductions — you straightforward take the standard deduction instead, which is a fixed amount. Some deductions, like the standard deduction itself and the deduction for self-employment tax, are available whether you itemize or not. These are called "above-the-line" deductions.

What happens if I claim a deduction I am not sure about?

If you claim a deduction and the IRS disagrees, they will disallow it during an audit and you will owe the additional tax plus interest. To avoid this, only claim deductions you are confident about, or consult a tax professional if you are unsure. The IRS website and Publication 17 cover most common situations.

Do I need to report the same deductions every year?

No. Your deductions change year to year based on what you actually spent. If you paid off your mortgage, you lose the mortgage interest deduction. If you had a major medical event, your medical deductions might be much higher. Review your situation each year to see what you can deduct.

Can I deduct losses from my investments or rental property?

Investment losses can offset investment gains, and you can deduct up to $3,000 of net capital losses against other income in a single year. Rental property losses are deductible, but there are limits if your income is above certain thresholds. These are complex situations — consult a tax professional or Publication 527 (Residential Rental Property) for details.