A tax-deductible expense or contribution reduces your taxable income. To calculate the worth of a tax deduction, multiply the deduction by your income tax rate. For example, if you deduct $10,000 in mortgage interest expense and are in the 25% income-tax bracket, the tax deduction is worth $2,500. If you deduct $1,000 in contributions to a charity, the tax deduction is worth $250.

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Incorporated businesses receive a tax deduction for expenses resulting from the “cost of doing business.” For individuals, tax deductions are available to compute adjusted gross income (AGI) and establish the taxable amount due. Some deductions must be in excess of a threshold or floor to qualify as a deduction.