What is the difference between tax credits and tax deductions?

What is the difference between tax credits and tax deductions?

Tax credits reduce your tax bill dollar for dollar, while tax deductions lower your taxable income.

Can you give me an example of each?

Sure! A tax credit example is the Earned Income Tax Credit, while a deduction example is the mortgage interest deduction.

Which one is more beneficial?

Generally, tax credits are more beneficial because they directly reduce your tax owed, while deductions only reduce taxable income.

Are there limits on how much I can claim?

Yes, both tax credits and deductions have specific limits and eligibility requirements, which can vary by type.