How do tax deductions really work?

Writing off an expense may seem like an easy way to put money back in your pocket — but it is a little more complicated than that

Coins stacked on top of blocks spelling out TAX
A tax deduction allows you to lower your taxable income, and a lower taxable income can result in paying less in taxes
(Image credit: Nora Carol Photography / Getty Images)

Writing off an expense as a tax deduction is often framed as an easy way to put money back in your pocket — but it is a little more complicated than that. A tax deduction simply allows you to lower your taxable income, and a lower taxable income can result in paying less in taxes. Note that this is distinct from a tax credit, which can actually "reduce the amount of taxes you owe, dollar for dollar," says SmartAsset. To make matters even more complicated, there are also standardized vs. itemized deductions.

Before your head starts spinning and you throw up your hands in frustration, read on for a simple rundown of how tax deductions really work, plus how they differ from tax credits and how you can claim them. It's worth the effort, as "when it comes to filing your taxes, understanding deductions is vital to maximizing your potential refund or minimizing what you owe," said H&R Block.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE
https://cdn.mos.cms.futurecdn.net/flexiimages/jacafc5zvs1692883516.jpg

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up
To continue reading this article...
Continue reading this article and get limited website access each month.
Get unlimited website access, exclusive newsletters plus much more.
Cancel or pause at any time.
Already a subscriber to The Week?
Not sure which email you used for your subscription? Contact us