How does tax deduction affect taxable income?

Tax deductions are specific expenses that taxpayers can subtract from their total income to reduce the amount of income that is subject to taxation. When you apply a tax deduction, you effectively lower your taxable income, meaning you'll owe less in taxes than you would if you were taxed on your total income.

For example, if an individual has a total income of $50,000 and takes a deduction of $5,000, the taxable income is reduced to $45,000. This reduction can lead to significant tax savings depending on the individual's tax bracket. Therefore, choosing to take deductions is a strategic way to decrease the amount of income that is taxed, making the option that states it reduces the total taxable income the most accurate representation of how tax deductions work.