Tax deduction

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Tax deductions are expenditures that the government allows you to subtract from your income for the purposes of calculating income taxes. The government uses deductions to help encourage individuals and corporations to do certain things. For example, the US allows homeowners to deduct the interest on their mortgage payments. This provides an incentive for people to purchase a house because doing so lowers their tax burden.

Tax deductions and tax credits or similar. A tax deduction reduces the amount of income on which your income tax is based, while a tax credit returns a portion of the tax paid or owned. A tax deduction for $100 is worth $100 times whatever your tax rate is. A tax credit for $100 is worth $100.