What's a "deduction"?

What's a "deduction"?

What's a deduction?A deduction reduces your income before arriving at either adjusted gross income or taxable income. It's money that you spend for something that is given tax favored status that you can reduce your income by. For example, let's look at medical expenses. Let's say you had a terrible year. You don't have medical insurance and you incur $10,000 in medical expenses you had to pay yourself, with no insurance. Can you deduct that $10,000? Well, there's a couple of problems with it. Number one, you have to itemize your deductions which means you lose the standard deduction. You don't get both. Then, for medical expenses, you have to reduce them by 7.5 percent of your adjusted gross income. For example, if your adjusted gross income is $100,000 you have to reduce your medical expenses by $7500. You don't get that as a deduction, even though you spent the money. So your net deduction for the medical expenses is only $2500.