A 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 allows certain expenses and costs to be deducted, which shrinks your taxable income — and therefore your tax bill. If you earn $60,000 and have $12,000 in deductions, you only pay tax on $48,000.

Deductions are different from tax credits. A credit directly reduces the tax you owe dollar-for-dollar, while a deduction only reduces the income that gets taxed. A $1,000 deduction might save you $200 or $300 in taxes depending on your tax bracket, but a $1,000 credit saves you exactly $1,000.

You do not have to itemize every deduction. Most people use the standard deduction, a flat amount set by the IRS each year that you can subtract automatically. For 2024, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly, though these amounts change annually. If your deductions add up to more than the standard deduction, you can instead itemize — list them out on Schedule A and deduct the total.

Key Takeaways

  • A deduction lowers your taxable income, not your tax bill directly, so its value depends on your tax bracket.
  • You can either take the standard deduction (a flat amount) or itemize deductions (list specific expenses) — you choose whichever is larger.
  • Common deductible expenses include mortgage interest, state and local taxes up to $10,000, charitable donations, and certain business or medical costs.
  • Bunching deductions into one year — for example, making charitable gifts in December and January instead of spreading them across two years — can help you exceed the standard deduction and itemize.

Standard deduction versus itemizing

The standard deduction is the simpler path for most people. You claim one number, no receipts required, and move on. The IRS updates the standard deduction each year to account for inflation, so it rises slightly most years.

Itemizing makes sense if your deductible expenses — mortgage interest, property taxes, state income taxes, charitable donations, and medical costs above a certain threshold — add up to more than the standard deduction. You will need to keep records: receipts for donations, mortgage statements, medical bills, and property tax statements. You report these on Schedule A and attach it to your Form 1040.

If you are married filing jointly and one spouse has significant deductions while the other does not, you still file one return together and choose one method. You cannot split the difference.

Common deductions you may be able to use

Mortgage interest is deductible if you itemize. You can deduct interest on up to $750,000 of mortgage debt (or $1 million if the mortgage originated before December 16, 2017). Your lender sends you a Form 1098 each January showing how much interest you paid.

State and local taxes (SALT) — income tax, property tax, and sales tax combined — are deductible up to $10,000 per year. This cap applies whether you are single or married filing jointly. Many high-income earners in high-tax states hit this limit.

Charitable donations to may have access to organizations are deductible. You need a receipt or bank record showing the amount and the organization's name. Donations of used clothing or household items are deductible at fair market value, though the IRS expects you to keep a list and photos.

Medical and dental expenses are deductible, but only the amount that exceeds 7.5% of your adjusted gross income (AGI). If your AGI is $80,000, you can only deduct medical costs above $6,000. This threshold is high enough that most people do not benefit.

Business expenses for self-employed people include home office space, equipment, supplies, and a portion of your health insurance premiums. You report these on Schedule C.

When bunching deductions makes sense

Some people have deductions that fluctuate year to year — particularly charitable giving. If you are close to the standard deduction threshold, you can bunch deductions into a single year to exceed it and itemize that year, then take the standard deduction the next year.

For example, suppose you are single with a standard deduction of $14,600. You typically donate $5,000 to charity each year and pay $8,000 in property tax. That is $13,000 total — less than the standard deduction, so you would not itemize. But if you donate $10,000 in year one and $0 in year two, you would have $18,000 in deductions in year one (enough to itemize) and $8,000 in year two (take the standard deduction). Over two years, you deduct $26,000 instead of $29,200, but you may also get other tax benefits from timing your donations strategically.

Bunching works best when you have control over the timing — charitable gifts, estimated tax payments, and elective medical procedures. It does not work for expenses you cannot control, like property taxes or mortgage interest.

Deductions versus credits: which saves more

A tax credit is almost always more valuable than a deduction of the same size. A $2,000 child tax credit reduces your tax bill by exactly $2,000. A $2,000 deduction reduces your taxable income by $2,000, which saves you $300 to $500 depending on whether you are in the 15%, 22%, or 24% tax bracket.

However, you cannot choose between them. The IRS determines which expenses may have access to as deductions and which may have access to as credits. Mortgage interest is a deduction. The child tax credit is a credit. You claim both if you are may be able to access for both.

Some expenses do not may have access to for either. Groceries, gas, and most clothing are not deductible. Fines and penalties are not deductible. Tuition is not deductible as a deduction, though you may be able to claim the American Opportunity Tax Credit or Lifetime Learning Credit instead.

How to track deductions throughout the year

If you think you might itemize, keep receipts and statements as you go. For mortgage interest and property taxes, your lender and tax assessor send official statements in January. For charitable donations, ask for a receipt at the time of donation or keep your bank and credit card statements showing the transfer.

For medical expenses, keep an envelope or folder with bills and receipts. For business expenses, use a straightforward spreadsheet or app to log purchases with the date, vendor, and category. The IRS does not require you to submit receipts with your return, but you must have them if the IRS asks.

If you use tax software, it will walk you through itemizing on Schedule A. If you work with a tax professional, send them your records by mid-March so they have time to prepare your return before the April 15 important date.

Frequently Asked Questions

Can I deduct my student loan interest?

Yes, but only up to $2,500 per year, and only if your income is below certain limits. You do not have to itemize to claim it — it is a deduction from income. The limit phases out for single filers earning over $75,000 and married filers earning over $150,000.

What if I have no deductions — do I still file a return?

If you have no income, you do not have to file. If you have income but no deductions, you still file and claim the standard deduction. You may also be due a refund if taxes were withheld from your paychecks or if you are may be able to access for credits like the Earned Income Tax Credit.

Can I deduct my home office if I work from home?

Yes, if you are self-employed or a business owner. You can deduct either a simplified amount ($5 per square foot, up to 300 square feet) or calculate actual expenses like rent, utilities, and depreciation. Employees who work from home cannot deduct a home office.

Do I lose deductions if I take the standard deduction?

Yes. When you take the standard deduction, you do not itemize, so you do not deduct mortgage interest, property taxes, charitable donations, or other itemized expenses. You only get the one flat deduction. This is why some people with large expenses choose to itemize instead.

What happens if I claim a deduction I am not supposed to?

If the IRS audits your return and finds a deduction you were not may have access to to, you will owe the tax you should have paid plus interest. If the error was unintentional, you may avoid penalties. If it appears intentional, penalties can be steep. Keep good records so you can defend any deduction you claim.