What counts as a tax deductible expense
A tax deductible expense is a cost you paid during the year that the IRS allows you to subtract from your total income before calculating what you owe in taxes. The lower your reported income, the less tax you pay. Not every expense you had qualifies — the IRS has specific rules about what kinds of costs count.
The two main categories are standard deduction and itemized deductions. Most people take the standard deduction, which is a flat dollar amount that changes each year based on your filing status (single, married filing jointly, head of household, and so on). If your actual expenses add up to more than the standard deduction, you can instead list them out individually — that is called itemizing. You choose whichever gives you the bigger reduction.
Whether you take the standard deduction or itemize, you must have kept records of what you spent. The IRS does not require you to send receipts with your tax return, but you need to have them if the IRS ever asks to verify your numbers.
Key Takeaways
- Most people use the standard deduction, a fixed amount that reduces taxable income without needing to list individual expenses.
- If your actual expenses exceed the standard deduction, you can itemize instead — list mortgage interest, property taxes, charitable donations, and medical costs that meet IRS thresholds.
- Self-employed people and business owners can deduct ordinary and necessary business expenses, which is a much broader category than what regular employees can claim.
- You must keep receipts and records for at least three years in case the IRS requests proof, even though you do not send them with your return.
- Some deductions have income limits or percentage thresholds — for example, medical expenses only count if they exceed 7.5 percent of your adjusted gross income.
Common deductions if you itemize instead of taking the standard deduction
If you own a home, you can deduct the interest you pay on your mortgage (not the principal) and your property taxes. These two alone often exceed the standard deduction, which is why many homeowners itemize. You can also deduct state and local taxes (SALT), but there is a cap: the total of state income tax, property tax, and sales tax combined cannot exceed $10,000 per year.
Charitable donations to may have access to organizations — churches, nonprofits, schools, and similar groups — are deductible. You need a receipt or written acknowledgment from the organization, especially for donations over $250. Donations of used clothing or household items can count too, but you have to estimate their fair market value yourself, and the IRS is skeptical of inflated estimates.
Medical and dental expenses that exceed 7.5 percent of your adjusted gross income (AGI) can be deducted. This means if your AGI is $50,000, only medical costs above $3,750 count. This threshold eliminates most people from claiming medical deductions unless they had a major health event or ongoing expensive treatment.
Student loan interest up to $2,500 per year is deductible even if you do not itemize — this is called an "above-the-line" deduction and reduces your income before the standard deduction is applied. Tuition and education expenses may also be deductible or may may have access to for a tax credit instead, depending on your income and the type of school.
Business and self-employment deductions
If you are self-employed or own a business, you can deduct ordinary and necessary expenses — the IRS's phrase for costs that are common in your line of work and that you actually need to operate. This is much broader than what an employee can claim. A freelancer can deduct home office space (either a percentage of rent or mortgage interest, or a flat $5 per square foot up to 300 square feet), supplies, software subscriptions, equipment, vehicle mileage, and meals with clients or business contacts.
You can deduct the cost of goods you sell, health insurance premiums you pay for yourself, and contributions to a retirement plan like a SEP-IRA or Solo 401(k). You cannot deduct personal expenses or anything that is not directly tied to earning income — for example, commuting to a job site is not deductible, but driving between job sites is.
Vehicle mileage is tracked using the standard mileage rate, which the IRS sets each year. For 2024, the rate is 67 cents per mile for business use (rates vary by year and purpose). You keep a log of trips, dates, destinations, and miles driven. Alternatively, you can deduct actual expenses — gas, insurance, repairs, depreciation — but you have to track those carefully and the mileage method is usually simpler.
Deductions you cannot claim
Personal expenses are never deductible, even if they feel necessary. Groceries, rent or mortgage principal (only interest counts), utilities, car payments, insurance on personal property, and clothing are all off-limits. Commuting to work is not deductible. Fines and penalties you pay are not deductible. Expenses you paid with pretax money through your employer — like health insurance premiums taken from your paycheck — cannot be deducted again on your tax return.
Political contributions and lobbying expenses are not deductible. Expenses for hobbies are not deductible unless the hobby generates income and you can show you run it as a business, not just for fun. The IRS looks skeptically at hobby deductions and may challenge them if your expenses consistently exceed your income.
Income limits and phase-outs for certain deductions
Many deductions shrink or disappear as your income rises. The student loan interest deduction phases out if your modified adjusted gross income (MAGI) exceeds certain thresholds — $70,000 to $85,000 for single filers and $140,000 to $170,000 for married couples filing jointly (these numbers change yearly). Above those ranges, you cannot claim the deduction at all.
Contributions to a traditional IRA are deductible only if you do not have access to a workplace retirement plan, or if your income is below certain limits. If you have a 401(k) at work, your IRA deduction phases out at lower income levels. Roth IRA contributions are never deductible, but the money grows tax-free instead.
The child tax credit and earned income tax credit have income limits too. These are credits rather than deductions — they reduce your tax dollar-for-dollar rather than reducing your income — but they work the same way: earn above the threshold and you lose part or all of the benefit.
How to track and organize deductions
Keep receipts, invoices, bank statements, and credit card statements for at least three years. The IRS can audit returns from the past three years as a matter of routine, and longer if they suspect fraud. Digital copies are fine — photograph receipts or save PDFs — as long as they show the date, amount, and what was purchased.
For business expenses, a simple spreadsheet or accounting software works well. Record the date, category (office supplies, mileage, meals, etc.), description, and amount. If you use accounting software like QuickBooks or Wave, it can organize expenses by category automatically and generate reports you can use when you file.
For charitable donations, keep the receipt from the organization or a bank record showing the transfer. For donations of goods, photograph the items and keep a list with estimated values. For vehicle mileage, a mileage log does not have to be fancy — a notebook in your car or a note in your phone works, as long as you record the date, destination, business purpose, and miles driven.
Standard deduction amounts for 2024
| Filing Status | Standard Deduction Amount |
|---|---|
| Single | $14,600 |
| Married Filing Jointly | $29,200 |
| Married Filing Separately | $14,600 |
| Head of Household | $21,900 |
| may have access to Widow(er) | $29,200 |
These amounts increase slightly each year for inflation. If you are 65 or older, or blind, you get an additional standard deduction amount on top of these figures. The IRS publishes updated amounts each January for the tax year you are filing.
For 2025, the standard deduction amounts will be higher than 2024 due to the annual inflation adjustment. Check the IRS website or your tax software for the current year's amounts before you file.
Frequently Asked Questions
Should I itemize or take the standard deduction?
Add up all your potential itemized deductions — mortgage interest, property taxes, charitable donations, medical expenses over the threshold. If that total is higher than the standard deduction for your filing status, itemize. If it is lower, take the standard deduction. You cannot do both in the same year.
Can I deduct my home office if I work from home?
Yes, but only if you use a specific room or area exclusively for work. You can deduct either a percentage of your rent or mortgage interest and utilities (the actual expense method) or use the simplified method of $5 per square foot, up to 300 square feet. Self-employed people can claim this; employees usually cannot unless they are required to work from home by their employer.
What happens if I do not have a receipt?
The IRS does not require you to attach receipts to your return, but you must have them if audited. For small expenses under $75, you can sometimes use a bank or credit card statement instead. For larger amounts, a receipt showing the date, amount, and what was purchased is your best proof.
Can I deduct meals and entertainment?
Meals with clients or business contacts are 50 percent deductible (100 percent if the meal was provided by a restaurant during 2021 and 2022, but that expired). Entertainment expenses are generally not deductible anymore. You must have a record showing the date, amount, attendees, and business purpose.
Do I lose deductions if my income is too high?
Some deductions phase out or disappear at higher income levels — student loan interest, IRA contributions, and certain credits are examples. Others, like mortgage interest and charitable donations, have no income limit. Check the specific deduction you are interested in, as the rules vary.