A tax deduction is a special tax break that reduces the amount of income on which you are taxed, thus reducing your overall tax burden.
Deductions are divided into two broad categories: the standard deduction and itemized deductions. Every taxpayer must choose one or the other.
The standard deduction reduces everyone’s income by the same amount. It’s faster and easier than itemizing deductions, but could result in a higher tax burden.
Itemizing deductions entails listing every individual deduction in the U.S. tax code that applies to you and calculating the amount by which it reduces your taxable income. This process and often long and complicated, but for certain taxpayers could result in a large payoff.
Please note, however, that some specific deductions, called above-the-line deductions, are available to all taxpayers, regardless of whether they itemize.
Tax deductions are not to be confused with tax credits, which reduce the amount of tax you owe outright.