Intuit Academy Tax Practice Exam 2025 – 400 Free Practice Questions to Pass the Exam

A tax deduction is a specific expense that reduces a person's taxable income, thus lowering their overall tax liability. In the scenario where a person is self-employed and incurs business expenses, they can claim those expenses as tax deductions. This is based on the principle that expenses necessary for conducting business operations can be subtracted from taxable income.

When self-employed individuals track and report their business expenses, they can deduct costs directly associated with running their business, such as supplies, utilities, and travel expenses. This not only ensures that they are taxed only on their true earnings after necessary expenses are accounted for but also fosters business activities by allowing entrepreneurs to reinvest in their operations.

In contrast, while having a certain taxable income, receiving a tax refund, or earning interest from a savings account may have implications for taxes, they do not directly relate to having eligible tax deductions. Taxable income is the basis upon which tax is calculated, a tax refund is simply a return of overpaid taxes, and earnings from interest are considered taxable income rather than deductible expenses.