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Focus Keyword: Tax Deduction vs Tax Credit
When it comes to taxes, understanding the differences between a tax deduction and a tax credit is crucial. The main distinction is that a tax deduction reduces your taxable income, resulting in lower overall tax liability, while a tax credit directly decreases the amount of tax you owe.
Differences between Tax Deduction and Tax Credit
- Tax Deduction: Deducts a certain amount from your taxable income, reducing the portion of your income that is subject to taxation.
- Tax Credit: Provides a dollar-for-dollar reduction in the actual amount of tax you owe.
It's important to note that tax deductions typically have a higher overall impact on reducing tax liability compared to tax credits, as they apply to your taxable income rather than the final tax calculation.
Both tax deductions and tax credits play important roles in reducing tax burdens, so it's essential to take advantage of all available deductions and credits when filing your taxes.
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