Tax Refunds & Advice

Many tax filers are confused when it comes to tax credits and tax deductions. In other words, they think that they are the same thing. And while credits and deductions are similar in some ways, they are not identical. As a taxpayer, you need to know the details of each one and how they can work to your advantage when filing your final return. If you are not sure of how to use tax credits and deductions, you will want to seek the help of a professional.

Tax credits are used to reduce your liability dollar for dollar. In other words, each dollar from a tax credit will lower your tax liability that same amount. As you can imagine, credits are a great way to reduce your taxes and in many cases eliminate your liability altogether. Some of the most commonly used tax credits include: child tax credit, earned income credit, retirement savings credit, adoption credit, and the foreign tax credit among others.

On the other side of things, tax deductions are used to reduce the income on which you pay tax. These deductions are claimed on page one of your 1040. Some of the most popular tax deductions include: IRA deduction, college tuition, mortgage interest, student loan interest, charitable contributions, moving expenses, and business expenses in addition to many others.

Now that you have a better understanding of tax credits and tax deductions, you should be able to file your return with more success and efficiency in the years to come. Remember, both credits and deductions can go a long way in reducing your tax liability. In the end, this allows you to save money.