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What’s the difference between a tax exemption and a tax deduction?
Tax exemptions and tax deductions both reduce your taxable income. Exemptions, however, are set amounts by which you reduce your taxable income based on yourself, your spouse and your dependents. In 2008, each exemption reduces your taxable income by $3,500 ($3,650 for 2009).
Deductions, on the other hand, are actual expenses that reduce your taxable income. You can deduct expenses such as alimony, capital losses and moving expenses whether or not you itemize your deductions. You can deduct other expenses, such as medical costs, mortgage interest, and charitable contributions, only if you itemize your deductions.Return to Questions
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