Do taxcredits or deductionsreallysave you money on your tax bill or give you a bigger refund?
What about tax exemptions and exclusions?
These two tax terms are probably the ones my clients confuse most often.
Both are valuable but credits tend to be far more impactful.
Let’s look at an example to help explain.
Say you’re a single filer who earned $50,000 in 2024 without any deductions or credits.
Your taxable income would be $50,000, so you’d owe $6,059 in taxes.
I’ve had many clients confuse the two, particularly themortgage interest deduction.
Some clients bought a home, assuming the deduction would reduce their taxes dollar-for-dollar.
If it were a tax credit, you’d save $20,000.
Refundable credits can be even more valuable because they reduce your tax amount to less than zero.
Somecommon tax creditsinclude those for child care, education, retirement savings contributions and home improvements.
Read more:Can I Claim the Dependent Care Credit?
Some common deductions include:
What is the difference between tax exemptions and exclusions?
Exemptions and exclusions may also sound similar, but they’re very different.
Exemptions
Exemptions are a specific dollar amount that can reduce your taxable income.
A common exclusion is the health insurance premiums paid by your employer.
While these are part of your compensation package, they are excluded from your income.
How can tax filers boost their refund or lower their tax bill?
More tax advice
