Deductions refer to specific amounts that can be subtracted from a person's total income when calculating taxable income. These reductions lower the overall tax liability, meaning individuals or businesses may pay less in taxes. Common deductions include expenses related to mortgage interest, charitable contributions, and medical expenses. In the context of personal finance, deductions can also apply to various expenses that reduce taxable income. For example, students may deduct certain education-related costs, while business owners can deduct operational expenses. Understanding and utilizing deductions effectively can lead to significant savings during tax season.