Do you know the difference between tax credits and tax deductions? Both can reduce the amount of taxes you owe, but they work in different ways. Tax deductions are taken out of your taxable income, which means lowering the number that is used to calculate your annual taxes owed. Tax credits, meanwhile, reduce the taxes you pay dollar for dollar. While itemized deductions are often business expenses, medical expenses, charitable contributions, and other costs that accumulate throughout the year, tax credits are one-time amounts for eligible taxpayers in certain circumstances.
Some of the most common tax credits include:
- Home energy credit, for homeowners who make their homes more energy efficient
- Adoption credit, for parents who have accumulated various expenses adopting a child
- Earned income credit, for taxpayers who work but fall below a certain income level
- Work opportunity credit, for employers hiring individuals from targeted groups
There are also tax credits available to parents and people pursuing higher education and continuing education. At Taxation Solutions, Inc., we’ll be happy to tell you more about the credits available to you and the deductions you should be tracking. We’re Raleigh’s best choice for reliable and knowledgeable tax help, able to guide you through tax season with ease. Contact us today to learn more!