What is the difference between a tax deduction and a tax credit?

A tax deduction and a tax credit are two important parts of tax law that help reduce the amount of money people have to pay in taxes. In California, a tax deduction is a reduction of income that is taken from the total amount of income you report to the Internal Revenue Service (IRS) before taxes are calculated. The amount of the deduction is based on the amount of money you spend on certain qualifying expenses. Common examples include charitable contributions, medical expenses, and mortgage interest. A tax credit, on the other hand, is an amount that is deducted from the amount of taxes you owe after your income is reported to the IRS. Tax credits can be refundable or nonrefundable. Refundable tax credits are those that can be used to reduce the amount of taxes you owe and may even result in a refund. Nonrefundable tax credits, on the other hand, can only reduce your amount of taxes you owe to zero but not to a negative amount. Common tax credits include the Earned Income Tax Credit, the Child Tax Credit, and the American Opportunity Tax Credit. In short, a tax deduction reduces the amount of income that is reported to the IRS before taxes are calculated, whereas a tax credit is an amount that is deducted from the amount of taxes you owe after your income is reported to the IRS.

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What is the difference between a tax deduction and a tax credit?

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