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Old 06-28-2013, 12:52 AM
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What is the Difference between Tax Credits and Tax Deductions?

Difference between Tax Credits and Tax Deductions?



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Old 06-28-2013, 06:28 AM
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Tax deductions help you to reduce the amount you owe in taxes which is to say that it puts you in a lower tax bracket and therefore, you owe less in terms of taxes.
After the tax bracket is determined, the tax credit is figured out. It implies to a dollar for a dollar reduction in your tax amount. You can also take advice from Tax Lawyer which is suitable for you.


Last edited by josehill : 06-29-2013 at 12:43 PM.


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Old 06-29-2013, 01:33 PM
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Originally Posted by johnross56 View Post
Difference between Tax Credits and Tax Deductions?
From a practical perspective, both tax credits and deductions reduce your tax. The difference between credits and tax deductions centers around their process, not their effect. A tax credit reduces the income tax you pay, while a deduction reduces the amount of your income that is subject to income tax. Examples of credits include the American Opportunity Credit, Hope Credit and Lifetime Learning Credit, while examples of deductions include the tuition and fees deduction, student loan and interest deduction, and deductions of medical expenses to name a few. Tax credits are often viewed as being more beneficial than tax deductions of a similar value since credits reduce the tax directly while deductions only reduce the taxable income amount. A deduction shaves money off your taxable income, so the value depends on your tax bracket. If you're in the 25% bracket, a $1,000 deduction lowers your tax bill by $250. But a $1,000 credit lowers the bill by the full $1,000, no matter in which bracket you are. Reducing the taxable income amount means that the actual reduction isn't as great as the credit allowance and thus, it isn't as valuable as a tax credit. Taxpayers are only allowed to claim those credits and deductions for which they are eligible.



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Old 11-06-2013, 03:19 AM
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AdamJohnson

Tax deductions and tax credits can both reduce an individual’s income tax liability, but they do it in different ways. Tax deductions reduce taxable income; their value thus depends on the taxpayer’s marginal tax rate, which rises with income. Tax credits directly reduce a person’s tax liability and hence have the same value for all taxpayers with tax liability at least equal to the credit.



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