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A tax credit is much more valuable than a deduction or income exclusion. A tax credit reduces your taxes, but a deduction reduces your taxable amount. Here's an example: Income: $40kTax deduction: $1kTax rate: 30%Tax: 0.3*(40-1) = $11,700Income: $40kTax credit: $1kTax rate: 30%Tax: 0.3*(40)-1 = $11,000Tax deductions and income exclusions have the same effect, but a different cause. Income exclusions apply to money that was not taxable in the first place (for example, some money earned in a foreign country), but deductions usually relate to spending and charity.
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Posted : 20/04/2010 5:03 pm
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