difference between a tax deduction and a tax credit

midnight · #1 (**permalink**) 02-15-2005, 04:18 PM

Can someone please explain to me the difference between a tax deduction and a tax credit?

DivaJen · #2 (**permalink**) 02-15-2005, 05:13 PM

If I'm not mistaken, a tax deduction is money you subtract from your taxable income, while a tax credit is money you subtract directly from the amount of tax you owe.

terry1156 · #3 (**permalink**) 02-15-2005, 06:26 PM

Quote:

Originally Posted by DivaJen

If I'm not mistaken, a tax deduction is money you subtract from your taxable income, while a tax credit is money you subtract directly from the amount of tax you owe.

Yes, that is correct. So if you were in the 30% tax bracket, a tax deduction would be worth 30 cents for each dollar you were able to deduct while a tax credit woulod be worth one dollar for every dollar. So, a tax credit is more beneficial to you than a tax deduction.