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Deduction Vs Tax

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What Is the Difference Between a Tax Deduction and a Tax Credit?

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Meta: If you want to ensure that you save money on your taxes, you need all of the deductions and credits you can get. Find out what is the difference between a tax deduction and a tax credit.

You know that you want to save money on your taxes, but the question is how. If you are not an accountant, you may not know the difference between a tax deduction and a tax credit. Luckily, these concepts are fairly straightforward, so it only takes a few minutes to figure them out. Once you learn the difference between a tax deduction and a tax credit, you can use that knowledge to maximize your tax return and save money.

What Is the Difference Between a Tax Deduction and a Tax Credit?
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With a tax credit, you get to subtract that amount from your tax liability. If you made $50,000 and owe $5,000 in taxes, a tax credit of $1,000 means that you now owe just $4,000.

With a tax deduction, the deduction is subtracted from your taxable income. In the same $50,000 example, a $1,000 tax deduction means that you know have a $49,000 taxable income. If you are taxed at the same rate as the previous example, then you would owe $4,900 in taxes. The most common tax deduction is the personal exemption, which was $4,050 in 2016. Meanwhile, the child tax credit is the most common tax credit. This worked out to $1,000 in 2016.

Is a Tax Credit or Deduction
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