What type of deductions can taxpayers claim to reduce their taxable income?

Taxpayers can reduce their taxable income primarily through standard deductions and itemized deductions. The standard deduction is a fixed dollar amount that reduces the income on which taxpayers are taxed. It is set by the IRS and varies based on filing status, age, and whether the taxpayer is blind.

Itemized deductions, on the other hand, allow taxpayers to list specific expenses they incurred throughout the year, such as mortgage interest, state and local taxes, medical expenses, and charitable contributions. Taxpayers can choose to take the standard deduction or itemize their deductions, depending on which option gives them a greater tax benefit.

While tax credits can also reduce taxes owed, they do not directly reduce taxable income. Wealth deductions, as mentioned, are not a recognized category for deductions within the tax system. Therefore, the combination of standard and itemized deductions is the most accurate description of how taxpayers can effectively reduce their taxable income.