Deduction in general refers to a subtraction or to the drawing of a conclusion through a reasoning process. In tax law, a deduction is an expense that may be subtracted from gross income to reduce an individual's income-tax liability. Some types of deductions allowed by the Internal Revenue Service include:
1. Business deduction-a deduction usually taken from gross income that is allowed for losses or expenses attributable to business activities or to activities engaged in for profit.
2. Charitable deduction- a deduction allowed for a contribution to a charity usually that is qualified under the tax law.
3. Dependency deduction- a deduction allowed to be taken in a set amount for a qualified dependent.
4. Itemized deduction- a deduction for a specifically recorded item that is allowed to be taken from adjusted gross income if the total of such deductions exceeds the standard deduction.
5. Marital deduction- a deduction allowed under the Internal Revenue Code to be taken from the gross estate that amounts to the value of any property interest which is included in the estate and which was given by a decedent to the surviving spouse ,provided that the interest is not terminable during the life of the survivor; a deduction allowed under the IRC of the value of any gift inter vivos subject to gift tax by one spouse to the other.
6. Personal deduction- a deduction allowed to be taken for losses or expenses that are not necessarily attributable to a business activity or an activity engaged in for profit.
7. Personal exemption deduction- a deduction for an amount set by tax law that includes the dependency deduction.
8. Standard deduction- a deduction of an amount set by tax law that is allowed to be taken from adjusted gross income unless the taxpayer elects to itemize deductions.