Andrew Lokenauth | TheFinanceNewsletter.com
Andrew Lokenauth | TheFinanceNewsletter.com

@FluentInFinance

4 Tweets Dec 25, 2022
A tax credit & tax deduction are two different things.
A tax credit is a dollar-for-dollar reduction of the tax you owe. For example, if you have a credit of $1,000, and you owe $5,000 in tax, your bill would be reduced by $1,000, to $4,000)
A tax deduction, on the other hand:
A tax deduction, on the other hand, reduces the amount of income that is subject to tax.
For example, if you have a tax deduction of $1,000, and you are in the 25% tax bracket, your tax bill would be reduced by $250 (1,000 x 25%).
Overall, tax credits are typically more valuable than tax deductions, because they provide a dollar-for-dollar reduction of your tax liability, whereas a tax deduction only reduces the amount of income that is subject to taxes.
Both tax credits and tax deductions can be valuable tools for reducing your income tax bill, but they work in different ways. It's important to understand the difference between the two, and to take advantage of any tax credits and deductions that you may be eligible for.

Loading suggestions...