There’s no need to worry because you can trust this Youtube video, “Tax Credits vs. Deductions” helps to dispel a common misconception among taxpayers. Let’s find out more!

Tax deductions lessen your tax liability However, tax credits may reduce the amount of actual cash you must pay. Although it may not sound very different, the truth is that it is. The best way to convey this is providing an example.

Think about the fact that you earn $14,000 in taxable income annually. If your tax rate is 10%, then you owe the federal government $1,400. We now have to include a deduction of $500. What exactly does that mean? Like we said before, a tax deduction reduces your taxable earnings, and as of in the present, the federal government can only tax you $13,500. At a 10% tax rate, you’ll be required to contribute $1,350.

Now, consider a $500 tax credit. Your tax-deductible income is identical at $14,000 therefore, you must pay $1,400 to the government. It is possible to reduce your tax-deductible income by taking a tax credit. In the end, you only owe $900

To learn more about tax credits, go through the entire video.