What is the difference between a tax deduction and a tax credit? Why is a tax credit more valuable?
What is a tax deduction?
A. A tax deduction is any amount of money which gets subtracted from a person's taxable income.
B. A tax deduction is any amount of money which gets added from a person's taxable income.
C. A tax credit is any amount of money which gets subtracted from a person's tax bill.
D. A tax credit is any amount of money which gets added from a person's tax bill.
What is a tax credit?
A. A tax credit is any amount of money which gets added from a person's tax bill.
B. A tax deduction is any amount of money which gets added from a person's taxable income.
C. A tax credit is any amount of money which gets subtracted from a person's tax bill.
D. A tax deduction is any amount of money which gets subtracted from a person's taxable income.
Answer
A tax credit is more valuable because it reduces the actual tax owed, dollar for dollar, while a tax deduction only reduces the amount of income that is subject to tax.
Step 1 ：A tax deduction is an amount that is subtracted from a person's taxable income. This reduces the amount of income that is subject to tax, thereby reducing the amount of tax owed.
Step 2 ：A tax credit is an amount that is subtracted directly from a person's tax bill. This reduces the actual tax owed.
Step 3 ：The difference between a tax deduction and a tax credit is that a tax deduction is an amount that is subtracted from a person's taxable income, while a tax credit is an amount that is subtracted directly from a person's tax bill.
Step 4 ：A tax credit is more valuable because it reduces the actual tax owed, dollar for dollar, while a tax deduction only reduces the amount of income that is subject to tax.
