What is the difference between a tax credit and a tax deduction in personal finance?

21 views Dec 19, 2023
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What is the difference between a tax credit and a tax deduction in personal finance Introduction: The World of Tax Benefits Hello everyone! Welcome back to our personal finance series. Today, we're going to dive deep into the realm of tax benefits. Specifically, we'll be exploring the distinction between two commonly used terms: tax credit and tax deduction. While they may sound similar, their implications can be quite different. So, let's get started! Defining the Terms: Tax Credit and Tax Deduction Before we delve into the differences, let's establish what each term means. A tax credit is a direct reduction in the amount of tax you owe. It's like a dollar-for-dollar discount. On the other hand, a tax deduction reduces your taxable income. It's like subtracting a portion of your income, which in turn reduces the tax you owe. While both provide tax savings, the mechanisms are distinct. The Benefit of Tax Credits: A Direct Impact

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