What are allowable deductions?

Allowable deductions refer to specific expenses that taxpayers can subtract from their gross income, thereby reducing their total taxable income and resulting tax liability. This concept is critical in personal and business tax calculations, as it allows individuals and businesses to lower their overall tax burden by recognizing necessary and ordinary expenses incurred in earning their income.

For instance, common allowable deductions include business expenses such as office supplies, travel costs related to business, or mortgage interest for homeowners. By accurately identifying and claiming these deductions, taxpayers can ensure they only pay taxes on their net income rather than their gross income, leading to a fairer tax treatment aligned with their true financial situation.