Tax credit and tax deduction differences

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    Hello, I want to know more about the differences between these two. I have heard that getting some knowledge about it can make a huge difference. Thank you in advance!


    Hello Adam, yes, you are completely right! I am so happy that someone started such topic because there is a lot of to talk about here. We all know that both can save you a lot of money if you use them right, but the differences still exist. A tax deduction is actually a result of some tax-deductible exemptions or even expenses. It is there to reduce your income, of course, the taxable one. Let’s say that your income is $70,000, so what would be your taxable income? It would be around $65,000. Tax credits are subtracted from your not taxable income. I hope that someone will explain better the second term. Hope I’ve helped!


    I can explain you the tax credit. John did a great job about tax deductions. You can understand a tax credit as a child credit because it is the most common one. Let’s say that you have a qualifying child. In that case, you can take a credit which can be up to $1,000. Besides it, your whole federal income tax liability would be more than doubled, like $2,500. So, you can calculate it! You will save up to $1,500! And per child!

    Philip D

    Credit will always give you more bang for your bucks. The deductions won’t. Bambale mentioned kids, and that is a great example. Besides children, you can use it for the education and also for energy efficiency. I also know how there are two varieties of deductions, but someone else may explain it better.


    Yes, those two different types of deductions can be called the ones you can take, and the ones the other business can take. Besides that, I would mention that these two first ones have the same purpose, and they can be actually under one category. The second type would be for some home business. What would be your primary home business deduction then? It would be your home space, definitely, in the first place. Hope I’ve made it clear.

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