Tax deductions

Tax deduction is a reduction of income that is able to be ed and is commonly a result of expenses, particularly those incurred to produce additional income. Tax deductions are a form of, along with exemptions and credits. The difference between deductions, exemptions and credits is that deductions and exemptions both reduce taxable income, while credits reduce tax.

Many jurisdictions allow certain classes of taxpayers to reduce taxable income for certain inherently personal items. A common such deduction is a fixed allowance for the taxpayer and certain family members or other persons supported by the taxpayer. The U.S. allows such a deduction for “personal exemptions” for the taxpayer and certain members of the taxpayer's household. The UK grants a “.” Both U.S. and UK allowances are phased out for individuals or married couples with income in excess of specified levels.

In addition, many jurisdictions allow reduction of taxable income for certain categories of expenses not incurred in connection with a business or investments. In the U.S. system, these (as well as certain business or investment expenses) are referred to as “” for individuals. The UK allows a few of these as personal reliefs. These include, for example, the following for U.S. residents (and UK residents as noted):
 * Medical expenses (in excess of 7.5% of adjusted gross income)
 * State and local income and property taxes
 * Interest expense on certain home loans
 * Gifts of money or property to qualifying charitable organizations, subject to certain maximum limitations,
 * Losses on non-income-producing property due to casualty or theft,
 * Contribution to certain retirement or health savings plans (U.S. and UK),
 * Certain educational expenses.

Many systems provide that an individual may claim a tax deduction for personal payments that, upon payment, become taxable to another person, such as alimony. Such systems generally require, at a minimum, reporting of such amounts, and may require that be applied to the payment.