Are you confused about tax credits and tax deductions? No worries, you're not alone!
The most important thing to remember is that you are dealing with 2018 deductions and credits for your 2019 tax filing.
Now that that is out of the way...
Is a Tax Credit or Tax Deduction Better?
Taxes can be overwhelming, but they don't have to be.
And that's exactly why TheStreet has partnered with TurboTax, a premiere tax expert. In a recent, exclusive webinar Tax Credit vs. Tax Deduction was one of the many hot topics.
According to TurboTax expert Lisa Greene-Lewis, if you were given a hypothetical choice between a tax deduction and credit, you would likely want that credit!
Why? Well, a tax credit actually reduces your tax dollar-for-dollar.
So, how does that work? Well, according to Greene-Lewis, a lot of it does depend on your tax bracket. But, let's just say that your credit and deduction are $100. If, in 2018, you are in the 24% tax bracket that would mean you could take a $24 deduction. But, if it were a tax credit, you'd reduce your taxes by $100. Now, doesn't that sound better?
Watch the video above for more.
Watch the entire free tax webinar sponsored by TurboTax and hosted by our Tracy Byrnes and Lisa Greene-Lewis here: The Ultimate Guide to Navigating Tax Reform: Watch Our Free Webinar. Together, they really help you understand and navigate filing your taxes for 2019.
What Is a Tax Deduction?
Here's what a tax deduction is just like it sounds, an expense or exemption that will ultimately reduce your bottom line (taxable income). A standard deduction, single or married filing separate, is a standard deduction. This standard deduction would reduce your 2018 taxable income with a standard deduction.
What Is a Tax Credit?
The difference with a tax credit is that these are subtracted from your tax liability, rather than your taxable income. So, to be clear, you get to subtract tax credits from the amount of taxes you actually owe. Tax credits range from the Child Tax Credit, Low-Income Housing Credit, Health Coverage Tax Credit and the American Opportunity Credit and Lifetime Learning Credit.
You can learn about all of the tax credits at IRS.govRelated. Tax Reform, Basics and Beyond - Watch our Free Turbo Tax Webinar