Tax deductions and tax credits: Both can reduce your income-tax liability. But each one does it differently.
Tax deductions reduce the amount of income on which you’re taxed. Your taxable income decreases by the amount of the deduction. The amount of the reduction in your final tax bill will depend on your tax bracket. Some deductions are available only if you itemize on your tax return instead of taking the standard deduction.
Tax credits reduce your tax liability dollar for dollar. They’re available whether you take the standard deduction or itemize. Some tax credits are fully or partially refundable, so if their value exceeds your tax liability, you’ll receive the excess amount. Generally, a tax credit is more valuable than a tax deduction.
Both types of tax breaks may be available to you