Credits & Deductions

Understanding tax credits and deductions is one of the best ways to reduce the amount of tax you owe and potentially increase your refund. While they both lower your tax bill, they work in different ways.

Tax Deductions reduce your taxable income, meaning you're taxed on a smaller amount.
Tax Credits directly reduce your tax owed, dollar for dollar.

Tax Credits

Tax credits are a powerful tool because they directly subtract from your tax bill. If your tax bill is $1,000 and you qualify for a $500 tax credit, your bill is immediately reduced to $500.

  • Earned Income Tax Credit (EITC):
    The EITC is a credit for low-to-moderate-income working individuals and couples, especially those with children. It can result in a refund, even if you don't owe any tax. The amount depends on your income, filing status, and number of qualifying children.
  • Child Tax Credit:
    If you have a qualifying child under the age of [age], you may be eligible for the Child Tax Credit. This credit can significantly reduce the tax you owe, and may be partially refundable.
  • Clean Energy & Vehicle Credits:
    Clean Vehicle Credits: Get a credit for purchasing a new or used electric or plug-in hybrid vehicle.
    Residential Clean Energy Credits: Available if you install solar panels, wind turbines, or other clean energy systems on your home.

Tax Deductions

Deductions reduce the amount of your income that is subject to tax. For example, if you earn $50,000 and qualify for $10,000 in deductions, you will only be taxed on $40,000.

  • Standard Deduction vs. Itemizing:
    Standard Deduction: A fixed amount all taxpayers can subtract from their income. Simple and used by most.
    Itemizing: List individual deductions like mortgage interest, charitable donations, and state/local taxes. Itemize only if your total deductions exceed the standard deduction.
  • Retirement Plan Contributions:
    Contributions to eligible retirement accounts (Traditional IRA, 401(k), etc.) are often tax-deductible. This reduces your taxable income for the year, giving you a tax break while you save for the future.
Tip: Review all available credits and deductions before filing to maximize your refund or minimize your tax bill.
Apply for Deductions Calculations

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