Definition
An amount subtracted from your income before tax is calculated, either through the standard deduction or by itemizing. Its cash value equals the deduction times your marginal rate, so the same deduction saves more for higher earners.
Why it matters
People chase deductions as if they were free money, but a deduction only trims the slice of income that gets taxed. Most filers take the standard deduction, so an extra deductible expense often changes nothing unless itemizing already beats the flat amount.
Example
A worker in the 22% bracket claims a $1,000 deduction: taxable income falls by $1,000 and the bill falls by $220. A $1,000 tax credit would have cut the bill by the full $1,000. Spending money just to get a deduction means spending a dollar to save 22 cents.
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.