What is the difference between a tax deduction and a credit?
A tax deduction reduces your taxable income before your tax liability is calculated. At the same time, a tax credit provides a direct dollar-for-dollar reduction in the amount of tax you owe. Deductions lower the income figure used to compute taxes, meaning their value depends on your marginal tax bracket. Credits are applied after taxes are calculated, providing equal value regardless of income level. Understanding this distinction is essential for effective tax savings planning, as combining both strategies through platforms like Instead maximizes total tax relief.
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