Differences Between Tax Credits and Deductibles

Sunbelt Tax Service processes thousands of individual and business tax returns every tax season. One of the leading tax preparation firms in Jackson, Mississippi, Sunbelt Tax Service's consultants are dedicated to identifying every applicable deduction and credit to secure the highest possible refund and lowest tax liabilities for their clients.

To incentivize certain actions, the IRS provides individuals and businesses with credits and deductions to lower their tax bills. Credits lower the amount of tax due, while deductions lower the amount of income liable for taxes. In general, credits have a larger impact on the final tax bill. However, some credits will only reduce the amount of tax owed to zero rather than resulting in a refund. Two exceptions are the Child Tax Credit and Earned Income Tax Credit.

Since these are refundable, even people who owed little or no tax may receive a refund after these credits are applied. Deductions on the other hand are offered in two forms, standard and itemized. The standard deduction increases every year, with the highest deduction for couples filing jointly. Itemized deductions include expenses such as mortgage interest, medical bills, or donations. For some filers, itemized deductions will result in more tax savings than the standardized option.