What's the Difference Between Tax Credits and Deductions?

What's the difference between tax credits and tax deductions?

Tax credits and deductions both reduce your tax bill and may also increase your tax refund, but in different ways.

Watch this TurboTax Support video for helpful information on the difference between tax credits and deductions and how they may affect your taxes.

Tax credits and deductions both reduce your tax bill, but in different ways.

Tax credits reduce the amount of taxes you owe dollar for dollar.

So, if you owe $7000 in taxes, a $2000 tax credit will reduce the taxes you owe to $5000 Common tax credits include the Earned Income Tax Credit, Child and Dependent Care Credit, and the American Opportunity Tax Credit.

On the other hand tax deductions reduce the amount of income you'll owe taxes on.

So if you made $45,000 and get $2,000 in deductions, the IRS will only tax you on $43,000.

Since credits and deductions reduce your tax bill, they may also increase your refund if you are getting one this year.

TurboTax automatically checks for more than 350 credits and deductions.

We'll ask you questions along the way to make sure you get every dollar you deserve.

For more answers to your questions visit turbotax.com/support