Tax Credit vs Tax Deduction
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What’s the Difference Between Tax Credit and Tax Deduction?
Both tax credits and tax deductions can help taxpayers pay less in taxes, but there are distinct differences between the two.
A tax credit is a straight subtraction from your tax bill. For example, a $10 tax credit will reduce your tax bill by $10. A tax deduction lowers your taxable income, and therefore lowers the total amount you owe.
A tax deduction reduces your taxable income, while a tax credit reduces your tax bill dollar for dollar.