Tax Credits vs Tax Deductions: What is the Difference and Which is Better?

Tax Credits vs Tax Deductions, which one do you think is better in 2022? Now as a tax preparer for many years, finding tax credits and tax deductions for our clients is one of the most satisfying parts of preparing a tax return. Because I was able to literally help save people thousands of dollars.

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So what is a tax credit? A tax credit directly reduces the amount of tax you owe, by giving you a “dollar for dollar” reduction of your tax liability.

Now - what is a tax deduction? Well, a tax deduction reduces how much of your income is subject to taxes. So a deduction focuses on lowering your taxable income NOT your tax liability.

Make sure you watch this entire video because the examples make EVERYTHING VERY CLEAR.

Outline for Tax Credits vs Tax Deductions:

Tax Credits vs Tax Deductions: (0:00)
What is a Tax Credit?: (1:27)
What is a Tax Deduction?: (1:55)
Are Tax Credits Better than Deductions?: (2:45)
Tax Standard Deduction: (4:09)
Example of Tax Credit vs Tax Deduction: (5:15)
The Bottom Line: (6:48)

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Disclaimer: The information provided in this video is for entertainment purposes only and is not meant to take the place of professional legal, accounting, or financial advice. If you have any legal questions about this video or the subjects discussed, or any other legal matter, you should consult with an attorney or tax professional in your jurisdiction (i.e. where you live).