Taxpayers have gotten a lot smarter over the years. Once, the filing-day tax cry was “Deduct!”
Now folks know they usually can save more tax dollars by claiming tax credits.
There are several reasons why credits tend to come out on top when you’re looking for tax savings.
The main reason is that in tax parlance, “credit” means the same thing as it does when you see that line item on your charge account statement. A tax credit is a dollar-for-dollar benefit. The credit is applied to your final IRS bill, meaning you get money back or don’t have to pay Uncle Sam as much.
A tax deduction, however, reduces the taxable income upon which your final tax bill is figured. Less income usually means a smaller ...