If you could choose between a tax deduction and a tax credit of the same amount, which would be more likely to benefit you? Understanding the difference can help you plan your taxes.

A tax deduction lowers the amount of income on which you’re taxed. The amount of your tax reduction will depend on your tax bracket. For example, if you’re in the 25% tax bracket, you’ll generally get a $25 tax break for every $100 you deduct. Many tax deductions are available only if you itemize on your tax return.

A tax credit is generally more valuable than a tax deduction. A credit reduces your tax liability dollar for dollar. Tax credits are available whether you take the standard deduction or itemize, and some tax credits are refundable.

Tax credits and deductions aren’t either/or propositions. You may be able to benefit from both types of tax breaks on your return.


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