What is the difference between a tax deduction and a tax credit for education expenses?
@ena.rippin
A tax deduction and a tax credit are both ways to reduce your overall tax liability, but they work in different ways when it comes to education expenses.
For example, if you have $10,000 in education expenses and you can claim a 20% tax deduction, your taxable income would be reduced by $2,000 ($10,000 x 20%). If you are in a 30% tax bracket, this deduction would result in a tax savings of $600 ($2,000 x 30%).
Using the same example as above, if you have $10,000 in education expenses and you can claim a $2,000 tax credit, your tax liability would be reduced by the full $2,000. This means you would pay $2,000 less in taxes without considering your tax bracket.
In summary, a tax deduction reduces your taxable income and can result in a lower tax liability based on your tax bracket, while a tax credit directly reduces the amount of tax owed and can provide a more substantial savings.