The xes are a major pain. It’s not necessary to be worried as this Youtube video “Tax Credits and. Deductions”, can help you to clarify the common misconceptions among taxpayers. You’ll learn more.

Tax deductions will lower your tax deductible earnings, but tax credits can decrease the amount of cash you must pay. Although it doesn’t sound much different, but at the end of the day, it is, and the best way to learn about it is through an instance.

Imagine that your taxable income per year is $14,000. If the tax rate you pay 10 percent, then you have to pay the federal government $1400. You must subtract $500. What happens? Like we said before, tax deductions reduce your tax-deductible earnings, which means that currently, the government will just tax you at a rate of $13,500. For a tax at a 10% rate, you’ll have to make a payment of $1,350.

Think about a tax credit of 500. Your taxable income remains exactly the same, at $14,000 so you have to give $1,400 back to the government. But since you have credits for tax and tax credit, you can reduce the amount directly, and you now just owe $900.

For more information about tax credits, go through the entire video.

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