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Know The Difference: Tax Credits vs. Deductions

Updated: Nov 19, 2022

There are two primary ways to reduce your tax bill.

If you're looking to reduce your tax bill, there are two primary ways to do it: Tax Credits and Tax Deductions. Tax Credits are based on the amount of taxes you owe, while tax deductions lower your taxable income. While both can save you money, it's important to understand the difference between the two so that you can make the most of your tax return.


Tax credits are a type of government subsidy that provides financial assistance to taxpayers. The amount of the credit is based on the taxes owed, and it can be used to offset the cost of taxes. Tax credits are available for a variety of expenses, including education, childcare, and home ownership.


There are also tax credits available for low-income households and businesses. Tax credits are a dollar-for-dollar reduction of your tax bill, meaning that if you have a $1,000 tax credit, your tax bill will be reduced by $1,000. Tax deductions, on the other hand, lower your taxable income, which can lead to a lower tax bill.


There are many tax deductions available to taxpayers. Some of the more common deductions are for charitable donations, medical expenses, and home office expenses. There are also deductions available for state and local taxes, as well as for mortgage interest and property taxes. By taking advantage of these deductions, taxpayers can save a significant amount of money on their taxes.


There are several different tax credits and deductions available, so it's important to do some research to see which ones you may be eligible for. But taking advantage of these credits and deductions can help you save money come tax time. In conclusion, there are two primary ways to reduce your tax bill: Tax Credits and Tax Deductions. By taking advantage of these methods and recognizing when to use and how to spot those little known tax deductions, you can lower your tax bill and keep more of your hard-earned money.


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