What are the differences between tax credits and tax deductions?
Tax Credits and Tax Deductions are not the same thing.
Deductions lower your taxable income, which reduces your tax by your marginal tax bracket percentage. So if you get a $1,000 deduction, you’ll pay taxes on $1,000 less income, which means you’ll save $250 on taxes if your marginal tax bracket is 25%. In other words, you’ll get back 25 cents for every dollar you spend on a deduction.
Credits, on the other hand, reduce your tax dollar-for-dollar. So if you get a $1,000 credit, you’ll pay $1,000 less in taxes.
As you can see, credits are much better than deductions.
As always, feel free to contact us with your tax questions...we’re happy to help!
© 2023 Peshke Financial Inc., all rights reserved. NMLS #2244878. "Making Finances Simple. Changing Lives." is a pending trademark with USPTO. Material contained in this website is for informational purposes only and is not meant to be construed as direct financial advice for your specific situation. It is recommended that you consult with your own advisors for any personalized financial guidance. Since we’re not licensed attorneys, we cannot provide legal advice. As such, any info contained in this website should not be construed as direct legal advice. Individual Licensure (see profiles) - click here. Send Docs Securely - click here.