Close Menu
    Facebook X (Twitter) Instagram
    Facebook X (Twitter) Instagram Pinterest
    BAUCE
    SUBSCRIBE
    • Hustle

      The Difference Between a Mentor and an Advisor: Understanding Their Unique Roles

      April 28, 2025

      Leveling Up: How Quality SEO Tools Can Take Your Brand to the Next Level

      April 23, 2025

      How to Network at a Women’s Conference And Build Meaningful Connections for Success

      April 4, 2025

      How to Know It Is Time to Get an Office as an Entrepreneur: 5 Clear Signs You’re Ready to Expand

      April 2, 2025

      Benefits of Adding Telehealth Options as a Med Spa Owner

      March 31, 2025
    • Believe

      How Working From Home May Make Anxiety Worse (And What to Do About It)

      February 27, 2025

      Overcoming Imposter Syndrome: Confidence Tips for Black Women Entrepreneurs

      January 27, 2025

      10 Black Influencers To Follow If You Want to Start A Business in 2025

      January 22, 2025

      How To Use Affirmations To Manifest Abundance and Wealth In Your Life

      January 6, 2025

      The Ultimate Guide to Digital Vision Boards

      January 2, 2025
    • Earn

      How Entrepreneurs Can Prepare for A Recession: Smart Strategies for Tough Economic Times

      April 30, 2025

      How Non-Profit Founders Can Gain Capital and Build Meaningful Partnerships

      April 21, 2025

      Here’s How To Properly File Taxes as a Small Business Owner

      April 7, 2025

      Staying the Course: How Black Women in the Retail Space are Navigating DEI Rollbacks

      March 24, 2025

      20 Funding Programs and Resources Every Black Woman Founder Needs To Know About in 2025

      March 19, 2025
    • Live

      7 Benefits of Morning Exercises for Entrepreneurs

      May 31, 2025

      What It Really Takes to Relocate Across States and Cities

      May 21, 2025

      How to Refresh Your Look Without a Major Makeover

      April 23, 2025

      The Art of Hosting Coming-of-Age Events

      April 15, 2025

      Find The Best Women’s Shoe Brands For Work By Focusing on Style and Comfort

      April 9, 2025
    • Profiles

      Serial Entrepreneur and TV Star Melody Shari On Adding Beauty To Her Business Empire

      April 7, 2025

      How Danika Berry Turned Adversity Into Success With The Relaunch Of Glam Body

      March 5, 2025

      How ArLancia Williams is Building Generational Wealth Through Real Estate

      March 3, 2025

      Candi Dailey Bridges Hope and Hospitality

      January 20, 2025

      How Culinary Trailblazer Ebony Austin Fuses Food and Philanthropy

      January 8, 2025
    • More
      • About
      • Contact
      • Jobs
      • Advertise
    • Shop
    BAUCE
    Earn

    What is the Difference Between a Tax Credit And Tax Deduction?

    By Shelitha Smodic, CFP®March 18, 20244 Mins Read
    Source: Pexels
    Share
    Facebook Twitter LinkedIn Pinterest Email

    Tax season is here, and with it, a flurry of articles on current tax rates, tax filing guides, and tax minimization strategies. One common way to lower taxes is through tax deductions and tax credits. However, the mechanics of how they work differ.

    Tax Deductions

    A tax deduction reduces a person’s taxable income. There are two types of deductions: standard and itemized. A standard deduction is a fixed amount each taxpayer can deduct to determine their taxable income. The Internal Revenue Service (IRS) provides the standard deduction amounts each year, and they are available for most taxpayers. For the 2023 tax year, the standard deduction for Single and Married Filing Separate tax filers is $13,850,$27,700 for Married Filing Jointly & Surviving Spouses tax filers, and $20,800 for taxpayers filing as Head of Household. In addition to these figures, individuals who are blind or over the age of 65 are allowed additional standard deductions.

    An itemized deduction is an allowable reduction in taxable income based on specific expenses. A tax filer could utilize several types of itemized deductions in a given tax year. Common examples of itemized deductions are charitable gifts, state income taxes, and medical expenses. However, itemized expenses have specific qualifications that must be met to be utilized. For example, if a person wishes to itemize their medical expenses, they could only consider medical and dental expenses paid for themselves, their spouses, or dependents not reimbursed or compensated by incomes that exceed 7.5% of their adjusted gross income.

    A taxpayer will either use their standard deduction or itemized deduction based on which value is larger and thereby would result in lower taxable income. Due to the increased standard deduction amount after the passing of the Tax Cuts and Jobs Act (TCJA) of 2017, most tax filers utilize the standard deduction rather than itemized deductions.

    Tax Credits

    A tax credit reduces the amount of actual taxes owed. Stated differently, the total amount of a tax credit will reduce the amount that a taxpayer owes by precisely that amount. This differs from a tax deduction, which reduces taxable income before calculating the amount of tax that the filer owes. Common tax credits are the child tax credit, child and dependent care credit, American Opportunity Tax Credit, and Lifetime Learning Credit.

    Tax credits like tax deductions have specific qualifications that a person must meet to be eligible to claim on their tax return. For example, to be eligible to claim the American Opportunity Tax Credit, there is a modified adjusted income limit of $180,000 for joint filers and $90,000 for single filers. The claimant must have spent money on qualified expenses like tuition, enrollment fees, or materials required for study for students pursuing an undergraduate degree or other recognized educational credential at least part-time. Students also must not have a felony drug conviction. This credit can be claimed by the tax filer, their spouse, or a student that the tax filer claims as a dependent. The maximum credit a person can claim is $2,500 and only for four years per student.

    Which is better?

    Mathematically, a tax credit will lower a tax bill more than a tax deduction of the same value because it reduces a filer’s tax liability dollar-for-dollar rather than just lowering their taxable income. However, the answer to whether a tax deduction or a tax credit is better for a specific taxpayer is “it depends.” Much of what determines if a tax deduction or tax credit is more beneficial to an individual taxpayer or household depends on what they personally can qualify for, which, as this article highlights, can significantly narrow the options available.

    Share. Facebook Twitter Pinterest LinkedIn Tumblr Email Reddit WhatsApp
    mm
    Shelitha Smodic, CFP®

    Shelitha Smodic is a personal finance writer, financial educator, and the founder of Meaning of Money. After years of working as a financial advisor, Shelitha is pursuing her doctorate in personal financial planning. Her mission is to make quality financial education available to everyone.

    Related Posts

    How Entrepreneurs Can Prepare for A Recession: Smart Strategies for Tough Economic Times

    April 30, 2025

    How Non-Profit Founders Can Gain Capital and Build Meaningful Partnerships

    April 21, 2025

    Here’s How To Properly File Taxes as a Small Business Owner

    April 7, 2025
    Add A Comment
    Leave A Reply Cancel Reply

    TOP RESOURCES FOR YOU

    15 Black Women Web Designers That Can Transform Your Website

    How To Truly Break The Cycle of Debt

    It’s Time To Stop Sleeping On Your Credit Score, Sis – Here’s Why

    These Are 15 of the Highest Paying Careers To Pursue

    15 Good Jobs That Women Can Do From Anywhere Without Experience

    Facebook X (Twitter) Instagram Pinterest
    • Advertise
    • Privacy Policy
    • Contact
    • Jobs
    • Subscribe
    © 2025 BAUCE MEDIA LLC

    Type above and press Enter to search. Press Esc to cancel.