Whats the Difference Between a Tax Credit and a Tax Deduction? –

can be a huge pain. It’s not necessary to be worried as it’s this Youtube video “Tax Credits in contrast to. deductions” will help clarify a common misconception among taxpayers. You’ll learn more.

While tax deductions will decrease your tax-deductible earnings by cutting it down, tax credits might reduce the amount you must pay. This may not sound like a big difference in the beginning, but at the conclusion in the end, it is an important distinction, and the most efficient way to learn about it is through an illustration.

Let’s say that your taxable annual income is $14,000. Your federal tax rate at 10% means you owe $1400 to the government. The amount we have to take is $500. What changes will that bring about? A tax deduction reduces your taxable income. So, the government is able to charge you just $13,500. With a 10% tax rate, you’ll have to be paying $1,350.

Think about a tax credit of 500. The taxable amount stays equal to $14,000 that means you’ll need to make a payment of $1,400. It is possible to reduce your tax-deductible earnings by getting the tax credit. Then you’ll owe $900

For further information about tax credits, you can watch the rest of this video.


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