Posted by Mary Caraccioli | Filed under tax
A question I get a lot is, “What is the difference between a tax deduction and a tax credit?”
A tax deduction is something that reduces how much taxable income you claim. A tax credit is something that directly reduces how much tax you owe.
A deduction shaves money off your taxable income, so the value depends on your tax bracket. If you’re in the 25% bracket, a $1,000 deduction lowers your tax bill by $250. But a $1,000 credit lowers the bill by the full $1,000, no matter in which bracket you are.