When it comes to understanding taxes, two terms that are used interchangeably are tax credits and tax deductions. Although they work in a similar way, they both have completely different meanings. Both can help you reduce your tax in different ways, and are easily confused by some people.

Tax Deductions

Are the dollar amounts offered by the IRS used to reduce your adjusted gross income which also lowers your taxable income (the income you would pay taxes on). This is a big help! There are two types of deductions: standard deduction or itemized deductions.

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