The Difference Between Tax Credit and Deduction {Differences Explained}

Hello and welcome to my latest video, where we'll be discussing a topic that often confuses many people when it comes to taxes: the difference between tax credits and tax deductions. I'm Erica Martinez, and as a tax professional with over 20 years of experience helping clients navigate the complexities of the tax system, I understand how daunting taxes can be. That's why I created this video to help you understand the difference between tax credits and deductions, and how they can affect your taxes. First, we'll start with tax credits. Tax credits are a direct reduction in the amount of tax you owe. So, if you have a tax credit of $1,000, for example, that means you can subtract $1,000 from the amount of tax you owe. In other words, tax credits are like a gift card that reduces the amount you have to pay. On the other hand, tax deductions reduce your taxable income, which in turn reduces the amount of tax you owe. So, if you have a tax deduction of $1,000, that means you can subtract $1,000 from your taxable income, which will lower your overall tax bill. Tax deductions are like a discount that reduces the amount you have to pay. It's important to note that not all tax credits and deductions are created equal. Some are refundable, meaning you can receive a refund if the credit or deduction exceeds the amount of tax you owe. Others are non-refundable, which means you can only reduce your tax liability to zero but can't receive a refund for the excess amount. In this video, we'll explore the different types of tax credits and deductions, including those related to education, healthcare, and energy efficiency. We'll also discuss which tax credits and deductions are available to individuals and businesses. By the end of this video, you'll have a clear understanding of the difference between tax credits and deductions, and how they can help you save money on your taxes. So sit back, relax, and let's dive into the world of tax credits and deductions! #taxes #taxexpert #taxprofessional #taxdeductions #taxtips #taxcredits #taxdeductions #ericamartinez #paragonaccountants