Tax deductions are granted to an individual or a business entity to encourage positive initiatives such as charity and donations, investments, education, and environmental protection. The United States is known for its large number of federal tax deductions. Apart from these federal tax deductions, the citizens can enjoy the benefits of additional deductions implemented by their state governments. Apart from the standard tax deduction, a person may be eligible for additional deduction in case of age or blindness. Married couples having joint tax filing are not eligible for tax deductions if their income crosses a certain amount ($145,000 in 2005).

An individual wishing to take advantage of the federal tax deductions may choose from standard deduction or itemized deductions. The itemized deductions are applicable on expenses such as household utilities, vehicles, and computers; education expenses; work-related expenses; and medical and nursing care expenses. Contributions for charitable purposes attract special federal tax deductions. Deductions on investments and money transactions are applicable in instances of bad debts, alimony, legal fees, and loans. Interestingly, federal tax deductions are granted even to a person who has lost in gambling. All the itemized deductions are dependent on factors such as tax filing status and income. They have separately calculated limits based on percentage of expenses or percentage of Adjusted Gross Income (AGI). The deductions can be carried from one tax year to another.

Federal tax deductions have been implemented to benefit the common man. However, there are instances in which these deductions are manipulated to evade taxes. Large companies and wealthy individuals often use their influence on lawmakers to modify the existing deductions in their favor. Opponents of this fraudulent activity are very much in favor of the government adopting an alternative to tax deductions, so that charity spending and investment can be encouraged in a proper manner.