Credits vs. Deductions

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Obtained from: IRS

Learning the A-Zs of taxes seems overwhelming. But with a little planning, research, and attention to detail, it can be easier than you think. Credits and deductions are an important part of the process—though sometimes it's difficult to tell them apart. 

You subtract tax credits from the amount of tax you owe. There are two types of tax credits:
  • A nonrefundable tax credit means you get a refund only up to the amount you owe.
  • A refundable tax credit means you get a refund, even if it's more than what you owe.
An example is the Child Tax Credit.

You subtract tax deductions from your income before you figure the amount of tax you owe. Deductions, such as the Tuition and Fees Deduction for qualified education expenses, can help lower the amount of your taxable income

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