An exemption is an amount of money you deduct from your income based upon the number of people on your tax return. It is adjusted every year for inflation. In 2016, the personal exemption is $4,050.
A deduction is based upon money you had to spend for items that the IRS considers to be deductible, or tax-favored. There are two categories:
- A standard deduction is a fixed amount you get to subtract from your income that anyone with your filing status is allowed to use. A deduction is independent of the number of people in your family or the amount of income you earn (unless you earn a lot of money, in which case you won't get a standard deduction). For instance, if you are filing single, your standard deduction is $6,300. Standard deductions are also adjusted for inflation.
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Itemized deductions are amounts you can subtract from your income based upon your expenses for certain tax-favored categories. They include home mortgage interest, taxes you have paid to state and local governments, investment expenses, job-related expenses, medical expenses, donations to charity, losses to fire, flood, or other catastrophe, and some other expenses.
Standard
deduction tables can be found in this IRS publication.
