A deduction is an expense a person or company can subtract from their gross income on their income tax return. A tax deduction decreases your taxable income. This means you owe less tax to the federal government. US taxpayers can choose to claim a standard flat deduction or can itemize deductions when they file their taxes. However, there is no standard deduction for businesses. Instead, companies have to report all their gross income and deduct every business expense.
There are no hard and fast rules on what expenses are tax-deductible. The list regularly changes and also depends on your tax bracket. However, here are some common examples of tax-deductible expenses:
- Home loan mortgage interest
- Property, state, and local income taxes
- Investment interest expense
- Medical expenses
- Charitable donations
When it comes to businesses, below are some common tax-deductible expenses. This list is not exhaustive, and you should consult a tax specialist for more information.
- Asset depreciation
- Professional services
- Office supplies and expenses
- Client and employee entertainment
- Furniture and equipment, including computer software
- Business travel expenses
Tax deductibles are not to be confused with payroll deductions. These are deductions an employer takes from an employee’s paycheck and usually relate to retirement benefits, health care costs, or special funds.