Tax deductions are a way to reduce your taxable income, thus reducing the amount of tax you owe. Deductions are expenses that can be subtracted from your income before calculating your taxes. Common deductions include charitable contributions, mortgage interest payments, and business expenses.
To be eligible for a deduction, the expense must be considered "ordinary and necessary" for your profession or business. It must also be directly related to earning income or conducting business. For example, a business owner may be able to deduct the cost of office supplies, but not the cost of a personal vacation.
There are certain limitations and exceptions to tax deductions that vary based on the jurisdiction and type of deduction. For example, some deductions may only be available to those who itemize their taxes, rather than taking the standard deduction. Additionally, certain deductions may be subject to phase-out limits or adjusted gross income (AGI) limitations.
To ensure you are maximizing your eligible deductions and staying compliant with relevant tax laws, it may be advisable to consult with a licensed tax professional or attorney. They can provide tailored advice and assistance with preparing your tax returns and navigating any potential audits or disputes.
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