Tax Deduction vs. Tax Credit
A deduction generally reduces taxable income. A credit generally reduces tax owed. The value of either benefit depends on eligibility and the taxpayer's facts.
How a deduction works
A deduction reduces the income subject to tax. Its dollar value depends on the applicable tax rate and other rules.
How a credit works
A credit is applied against calculated tax. Some credits are nonrefundable, while others may be partly or fully refundable under applicable rules.
Simple comparison
A $1,000 deduction does not usually reduce tax by $1,000. A $1,000 credit may reduce tax by as much as $1,000, subject to credit limitations and refundability.
Recordkeeping
Keep documents supporting eligibility, amounts, dates, and business or personal purpose. Tax rules and limits can change, so confirm current requirements when filing.