Tax Deduction
An amount subtracted from gross income to reduce taxable income, lowering tax liability by the deduction amount multiplied by the marginal tax rate.
Detailed Explanation
Above-the-line deductions reduce AGI and include traditional IRA contributions, student loan interest, half of self-employment tax, self-employed retirement contributions, and self-employed health insurance. Below-the-line deductions either come from the standard deduction or itemized deductions on Schedule A (state and local tax up to $10,000, mortgage interest, charitable contributions, medical expenses above 7.5% of AGI). Section 199A QBI is a separate post-AGI deduction for pass-through business owners.
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Learn about Tax Planning & StrategyRelated Terms
Standard Deduction
A fixed dollar amount that reduces taxable income, available to taxpayers who do not itemize deductions on Schedule A.
Section 199A QBI Deduction
A federal deduction of up to 20% of Qualified Business Income for owners of pass-through entities and sole proprietorships.
Tax Credit
A dollar-for-dollar reduction of tax liability, more valuable than a deduction of equal size since deductions only reduce taxable income.
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