What is a tax deduction? A tax deduction lowers your taxable income and thus reduces your tax liability. You subtract the amount of the tax deduction from your​ ...Manyoralloftheproductsfeaturedherearefromourpartnerswhocompensateus.Thismayinfluencewhichproductswewriteaboutandwhereandhowtheproductappearsonapage.However,thisdoesnotinfluenceourevaluations.Ouropinionsareourown.Hereisalistofourpartnersandhere'showwemakemoney.Taxdeductionsandtaxcreditscanbehugemoney-savers —ifyouknowwhattheyare,howtheyworkand howto pursuethem.Here'sacheatsheet.Whatisataxdeduction?A taxdeductionlowersyourtaxableincomeandthusreducesyourtaxliability.Yousubtracttheamountofthetaxdeductionfromyourincome,makingyourtaxableincomelower.Theloweryourtaxableincome,theloweryourtaxbill.Whatisataxcredit?A taxcredit isa dollar-for-dollarreductioninyouractualtaxbill.Afewcreditsarerefundable,whichmeansifyouowe $250intaxesbutqualifyfora$1,000credit,you’llgetacheckforthedifferenceof$750.(Mosttaxcredits,however,aren’trefundable.)Asthesimplifiedexampleinthetableshows,ataxcreditcanmakeamuchbiggerdentinyourtaxbillthanataxdeduction.Wouldyouratherhave:A$10,000taxdeduction……ora$10,000taxcredit?YourAGI$100,000$100,000Less:taxdeduction($10,000)Taxableincome$90,000$100,000Taxrate*25%25%Calculatedtax$22,500$25,000Less:taxcredit($10,000)Yourtaxbill$22,500$15,000*Examplerate.TheU.S.hasaprogressivetaxsystem.HowtoclaimtaxdeductionsGenerally,therearetwowaystoclaimtaxdeductions:Takethestandarddeductionoritemizedeductions.Youcan’tdoboth.Thestandardtaxdeductionfor2020and2021Thestandarddeductionbasicallyisaflat-dollar,no-questions-askedreductioninyouradjustedgrossincome(AGI).The amountyouqualifyfordependson yourfilingstatus.Filingstatus2020taxyear2021taxyearSingle$12,400$12,550Married,filingjointly$24,800$25,100Married,filingseparately$12,400$12,550Headofhousehold$18,650$18,800Peopleoverage65orwhoareblindgetabiggerstandarddeduction.ItemizingdeductionsItemizingletsyoucutyourtaxableincomebytakinganyofthehundredsofavailabletaxdeduc