Tax deduction
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A tax deduction or a tax-deductible expense affects a taxpayer's income tax. A tax deduction represents an expense incurred by a taxpayer. It is subtracted from gross income when the taxpayer computes his or her income taxes. As a result, the tax deduction will lower overall taxable income and the amount of tax paid. The exact amount of tax savings is dependent on the tax rate and can be complicated to determine.
A tax credit is a similar concept, but is different in that it reduces the tax paid dollar-for-dollar. This amount of tax savings is not dependent on the rate the taxpayer pays.
