What's the Difference Between Tax Deductions and Credits?

While tax deductions decrease your taxable income, tax credits decrease your tax bill. This means that credits reduce your tax bill, giving you more money, while deductions do not. 

How Do Tax Deductions Work?

In order to determine your total tax bill for each Tax Year, all your deductions are subtracted from your taxable income. They may even increase your tax refund. 

How Do Tax Credits Work?

Claiming tax credits is similar to keeping bigger slices of an apple: the more credits you claim, the more of your money you get to keep. You can decrease your tax payments as you claim more credits. 

What Are Examples of Deductions?

Here are some deductions you can claim on your tax return: 

  • You can deduct many charitable contributions and donations. 
  • There are deductions for using your vehicle for charity or traveling to and from work.
  • You may claim mortgage interest as well as other itemized deductions.

Learn more about other deductions for school, jobs, and other life situations on Taxpert.com. 

What Are Examples of Credits?

You may able to claim any of these credits on your return: 

  • There is the Child Tax Credit, which is worth up to $1,000 for each qualifying child you claim on your tax return.
  • You may reduce your tax by claiming the Child and Dependent Care Tax Credit for any expenses related to payments you give to someone to care for a child under the age 13, a qualifying spouse, or a dependent.

Discover other credits for energy, education, and health on Taxpert.com.

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