Tax Credit 2022

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TAXES
TAX DEDUCTIONS GUIDE: 20 POPULAR BREAKS IN 2022
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Tax Deductions Guide: 20 Popular Breaks in 2022
A deduction cuts the income you're taxed on, which can mean a lower bill. A credit cuts your tax bill directly.
Written by Tina Orem
Reviewed by Lei Han 
Mar 2, 2022

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Tax deductions and tax credits can be huge money-savers — if you know what they are, how they work and how to pursue them. Here's a cheat sheet.

What is a tax deduction?
A tax deduction lowers your taxable income and thus reduces your tax liability. You subtract the amount of the tax deduction from your income, making your taxable income lower. The lower your taxable income, the lower your tax bill.

What is a tax credit?
A tax credit is a dollar-for-dollar reduction in your actual tax bill. A few credits are refundable, which means if you owe $250 in taxes but qualify for a $1,000 credit, you’ll get a check for the difference of $750. (Most tax credits, however, aren’t refundable.)

As the simplified example in the table shows, a tax credit can make a much bigger dent in your tax bill than a tax deduction.