Understanding Tax Deductions vs. Tax Credits

Many taxpayers confuse tax deductions with tax credits, but understanding the difference can significantly impact your tax savings. Let's break down these important tax concepts.

Tax Deductions

Tax deductions reduce your taxable income. For example, if you're in the 22% tax bracket and have a $1,000 deduction, you'll save $220 in taxes. Common deductions include:

• Mortgage interest


• Charitable contributions


• Medical expenses (above 7.5% of AGI)


• State and local taxes (SALT)

Tax Credits

Tax credits are more valuable because they directly reduce your tax bill dollar-for-dollar. A $1,000 tax credit saves you $1,000 in taxes, regardless of your tax bracket. Popular credits include:

• Child Tax Credit


• Earned Income Tax Credit (EITC)


• Education credits (American Opportunity Credit, Lifetime Learning Credit)


• Energy-efficient home improvements credit

Which is Better?

Tax credits are generally more valuable than deductions because they provide a dollar-for-dollar reduction in your tax liability. However, both can significantly reduce your tax burden when used strategically.

Our tax professionals can help you identify all available deductions and credits to maximize your tax savings.