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Credits vs Deductions

At TaxTeam415, we're often asked the difference between credits and deductions. These terms are not interchangeable. Here's a clear example:


If given the opportunity would you prefer a $100 deduction or a $100 credit? Go ahead. We'll wait. 


The tax advantage answer is to take the credit.  Unlike a tax deduction, a $100 tax credit reduces your tax dollar-for-dollar ($100).  On the other hand, a tax deduction reduces your taxable income by $100. The resulting amount of tax you save depends on your tax bracket.  If you are in the 25% tax bracket, a $100 tax deduction reduces your taxes by $25.


Credits and Deductions

The Earned Income Tax Credit, and the Child and Dependent Care Credit help millions of families every year. There are also a number of credits for small and large businesses. In addition to the standard deduction for individuals, common deductions include home mortgage interest, state and local tax, and charitable contributions. Many business expenses are deductible as well. TaxTeam415 is ready to discuss available credits and deductions for your federal and state returns.