Tax Tips: What is a tax credit?

A tax credit is one of the most valuable pieces of the tax calculation that a taxpayer could have. After you calculate the amount of taxes you are supposed to pay, a credit is subtracted from that amount. So the credit directly reduced what you pay to Uncle Sam.

A credit is better than a deduction, because a deduction just reduces the amount of your income which is taxed. In contrast, the credit reduces the amount of taxes you pay. The IRS has a number of credits available to taxpayers, including: the child tax credit, the child care credit, education credits, earned income credit, foreign tax credit, and retirement savings account credit.

Make sure you're taking advantage of all the credits you're entitled to.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

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