Tax Deductions vs Tax Credits: What’s the Difference?
Tax deductions are a way to reduce your taxable income. They are subtracted from your gross income to arrive at your taxable income. Tax credits are a way to reduce your tax bill. They are added to your taxable income to arrive at your total tax bill. There are a number of tax deductions that you may be entitled to, such as mortgage interest and charitable donations. Tax credits are available to you if you meet certain eligibility requirements, such as low income or if you are a members of a certain class of people, such as the elderly or the disabled. Tax deductions and tax credits can both reduce your tax bill, but they work in different ways. Tax deductions reduce your taxable income and therefore reduce your tax bill. Tax credits, on the other hand, reduce your tax bill by adding it to your taxable income.