what “tax deductible” actually means, practically speaking

Question

I just don’t get it.

In: 3

Answer 1

If you itemize your deductions, it reduces your taxable income by the amount that went to that deductible activity. Say you put $1000 into your IRA (a tax deductible retirement account). The taxable income you’d pay taxes on goes down by $1000, so your taxes would go down by $150-200 or so depending on your marginal tax bracket.