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

A tax deduction and a tax credit are both ways to lower your tax burden when filing taxes in the state of Virginia. A tax deduction is a way to lower your total taxable income. It reduces the amount of income you need to pay taxes on. Tax deductions are often associated with business expenses or charitable donations. A tax credit, on the other hand, is a dollar-for-dollar reduction of the taxes you owe. A tax credit is a direct reduction of your total taxes due, so it can be more valuable than a deduction. Tax credits are often earned through education or home ownership. The difference between a tax deduction and a tax credit is that a deduction reduces your total taxable income, whereas a credit directly reduces the taxes you owe. For example, if you made $50,000 and had a $5,000 deduction, your taxable income would be $45,000. But if you had a $5,000 tax credit, it would directly reduce the amount of taxes you owe by $5,000.

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