What is the difference between a tax deduction and a tax credit?

@ena.rippin 

A tax deduction reduces the amount of income that is subject to taxation, while a tax credit reduces the amount of tax owed dollar for dollar.

A tax deduction is an expense or financial situation that can be subtracted from your gross income before calculating your taxable income. It reduces the amount of income that is subject to tax. For example, if you have a tax deduction of $5,000 and your taxable income is $50,000, your taxable income is reduced to $45,000, which leads to less tax owed.

On the other hand, a tax credit is a direct reduction in the amount of tax owed. It is usually offered as an incentive to encourage certain behaviors or to provide relief to specific groups of taxpayers. Tax credits directly reduce the amount of tax you owe dollar for dollar. For example, if you owe $10,000 in taxes and have a tax credit of $2,000, your tax liability will be reduced to $8,000.

In summary, a tax deduction reduces taxable income, while a tax credit directly reduces the amount of tax owed. Tax deductions are based on expenses or financial situations, while tax credits are usually tied to specific behaviors or categories.