Video narration
Which takes more off your taxes: a deduction or a credit? Think of a checkout receipt: one changes the amount a bill is calculated from; the other cuts the final bill. It's not a literal tax model, but the distinction helps. The key is where the amount comes off. A tax deduction lowers the income your tax is calculated on. A tax credit lowers your tax bill itself. Suppose both are $1,000, and your tax rate on that income is 22 percent: the deduction saves about $220; a fully usable credit saves $1,000. But credits can have limits. Some can't reduce tax below zero; refundable credits work differently. A deduction's value depends on your tax rate. So which saves more? For the same amount you can use, usually a credit: it cuts your tax bill dollar for dollar; a deduction saves only the tax on that income.