Tax Deduction

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DEFINITION of 'Tax Deduction'

A deduction from gross income that arises due to various types of expenses incurred by a taxpayer. Tax deductions are removed from taxable income (adjusted gross income) and thus lower the overall tax-expense liability.

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BREAKING DOWN 'Tax Deduction'

Different regions have different tax codes that allow a variety of expenses to be deducted from taxable income. Tax deductions are often used to entice taxpayers to participate in programs which have a societal benefit. For example, charitable donations and the expenses incurred to make one's home more environmentally friendly can sometimes be deducted from taxable income.

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