tax deduction

Tax deduction is an expense or item that reduces the amount of income subject to tax. A deductible amount is subtracted from total taxable income, which can lower the tax owed by an individual or business. Common deductible expenses include certain charitable contributions, state and local taxes, medical expenses, capital losses, and qualifying business costs. The types and limits of deductions vary by jurisdiction and by whether the taxpayer is an individual or an entity.

On the federal level, the alternative minimum tax (AMT) limits the extent to which some deductions can reduce taxes for individuals with higher incomes. For example, if a taxpayer earns $300,000 with a 25% tax rate, the regular tax would be $75,000. If they have $50,000 in deductions, the tax owed would drop to $25,000. However, if the AMT requires a minimum effective tax rate of 10% for incomes over $100,000, the taxpayer must pay at least $30,000.

For the 2024 tax year (filed in 2025), the AMT exemption amounts were:

  • $85,700 for single filers and heads of household
  • $133,300 for married couples filing jointly and qualifying surviving spouses
  • $66,650 for married individuals filing separately

The AMT exemption phases out when alternative minimum taxable income exceeds:

  • $609,350 for single filers and heads of household
  • $1,218,700 for married couples filing jointly and qualifying surviving spouses
  • $609,350 for married individuals filing separately

Taxpayers may choose between the standard deduction and itemized deductions, they cannot use both. The standard deduction is a fixed amount that reduces taxable income and varies by filing status, age, and other factors. For the 2024 tax year, filed in 2025, the standard deduction amounts were:

  • $14,600 for single filers or married individuals filing separately
  • $21,900 for heads of household
  • $29,200 for married couples filing jointly or qualifying surviving spouses

An additional amount is added for taxpayers age 65 or older or who are blind: $1,550 per qualifying condition ($1,950 if single or head of household). Special rules increase the standard deduction for certain circumstances, such as losses from federally declared disasters. Many taxpayers use the standard deduction because it is simpler, but itemizing may be beneficial if total eligible deductions exceed the standard deduction.

Additional Resources: 

[Last reviewed in August of 2025 by the Wex Definitions Team] 

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