Tax-Deductible.

A tax-deductible expense or contribution is one that the Internal Revenue Service allows taxpayers to subtract from their gross income before calculating the amount of income subject to taxation. By reducing taxable income, a deduction lowers the tax bill by an amount equal to the deduction multiplied by the taxpayer's marginal tax rate. A $5,000 deduction for a taxpayer in the 22% bracket saves $1,100 in federal taxes; the same deduction for someone in the 37% bracket saves $1,850. Deductions are therefore more valuable to higher earners, which distinguishes them from tax credits, which reduce the actual tax owed dollar-for-dollar regardless of income. In the realm of personal investing and savings, the most significant tax-deductible items include contributions to traditional IRAs (subject to income limits and workplace plan participation rules), contributions to certain employer-sponsored retirement plans, student loan interest, mortgage interest on primary and second residences, and state and local taxes (subject to the $10,000 SALT cap introduced in 2017). Self-employed individuals can also deduct health insurance premiums and contributions to SEP-IRA or Solo 401(k) plans, often generating substantial tax savings. The Tax Cuts and Jobs Act of 2017 significantly reduced the number of taxpayers who itemize deductions by nearly doubling the standard deduction, making itemized deductions relevant primarily for those with high mortgage interest, state taxes, or charitable contributions that exceed the standard deduction threshold.