What is a common characteristic of a tax deduction?

A common characteristic of a tax deduction is that it is typically linked to expenses incurred to generate additional income. Deductions reduce your taxable income by allowing you to subtract certain expenses from your total income before calculating the amount of tax owed. This means that deductions are often associated with necessary costs or investments that help you earn more, such as business expenses, medical expenses, or educational costs.

When individuals or businesses incur expenses that directly contribute to their income-producing activities, these expenses can often be deducted from their taxable income. By lowering taxable income, tax deductions can ultimately reduce the overall tax burden.

The other options do not accurately describe the nature of tax deductions. Tax deductions do not increase taxable income; instead, they decrease it. They are not limited to businesses, as individuals can also claim various deductions. Additionally, tax deductions are not limited solely to capital gains, as they apply to a wide range of expenses.