Q&A of the Week August 7, 2024

Question

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

Answer

A credit is subtracted directly from your tax bill. The total tax amount you owe the IRS will decrease by $1,000 if you claim a $1,000 tax credit.

A tax deduction reduces your adjusted gross income (AGI) which in turn reduces the amount of taxes you'll owe. Your tax liability will be reduced by 24% of the total claimed deduction if you’re in the 24% tax bracket.

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