Tax Deduction
Last reviewed 2026-05-11 by Asad Ali, Founder & CEO
An expense that reduces taxable income.
A tax deduction lowers the amount of income subject to taxation. Deductions can be above-the-line (reducing AGI, available to all filers) or below-the-line (itemized or standard). Common business deductions include rent, salaries, supplies, insurance, and depreciation. The tax savings from a deduction equals the deduction amount multiplied by your marginal tax rate.
Example
A small business deducts $24,000 in office rent—in the 24% tax bracket, this saves $5,760 in federal income taxes.
Why It Matters for Your Business
Every legitimate deduction directly lowers your tax bill, so knowing which expenses qualify helps you keep more of what you earn.
Practical Tips
- •Track all business expenses throughout the year rather than scrambling at tax time.
- •Consult a tax professional about industry-specific deductions you might be missing.
Common Questions About Tax Deduction
What is an example of tax deduction?
A small business deducts $24,000 in office rent—in the 24% tax bracket, this saves $5,760 in federal income taxes.
Why does tax deduction matter for my business?
Every legitimate deduction directly lowers your tax bill, so knowing which expenses qualify helps you keep more of what you earn.
How does FiscalInsights help with tax deduction?
FiscalInsights tracks tax deduction automatically as part of its AI bookkeeping workflow. Connect your bank accounts and the platform handles categorization, reconciliation, and reporting without manual entry.
Related Terms
More Taxes Terms
Estimated Taxes
Quarterly tax payments made by self-employed individuals and businesses.
Form 1099
IRS forms reporting various types of income other than wages.
Form W-2
Annual statement from employers showing employee wages and taxes withheld.
Payroll Tax
Taxes withheld from employee wages for Social Security and Medicare, plus employer-side employment taxes.
FICA
Federal Insurance Contributions Act taxes that fund Social Security and Medicare.
Related Taxes Guides
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