What Is a Deduction?

Learn about deductions in this Howcast finance video with expert Gregory McGraime.

Transcript

A deduction is really important because when you take a deduction on your taxes, you're actually lowering your taxable income. Meaning you're saving on taxes today. Some of the more common deductions are the standard deduction that you may be able to take. Or there might be itemized deductions like mortgage interest or real estate taxes. Or contributing money to a charity. And so, just to give you an example to put this into context, it I make fifty thousand dollars a year, and I contributed two thousand dollars to charity, I'm lowering my taxable income from fifty thousand down to forty eight thousand. And that's gonna save me money on taxes. Now it's not a free benefit, I had to contribute money to do it, but that deduction is compensating me for part of that amount. So what everybody watching this needs to do, is to really review your tax situation to see if there are other deductions that you might be entitled to, that you're not currently taking. Because I see that all the time when I'm reviewing someone's tax returns and there were deductions that they were eligible for, but that they just didn't know about and as a result they ended up missing out on that benefit. If you work with some tax development software or you work with an accountant, um, make sure you kind of review all the possible deductions that you may be eligible for and take advantage to what you're entitled to really minimize your tax burden.

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