Why a Tax Credit is Better than a Tax Deduction

It is tax time again, and this is a question that I have already received twice this week. So here is the answer:

A tax credit lowers your tax bill directly.

A deduction lowers your adjusted gross income, so the amount you get shaved off your tax bill is directly tied to your tax bracket.

For example, a $1000 tax credit will lower your tax owed to the IRS by $1000.

A $1000 deduction, if you are in the 25% tax bracket, will lower your adjusted gross income by $1000, thereby lowering your tax bill by about $250.

Check out the latest tax credits for 2011.

Hope this helps!

- Robert