Apr
26
Written by:
Renato.Eccher
4/26/2009 1:40 PM
What is the difference between a tax deduction and a tax credit? Depending on your personal tax rate the difference can be 3 times! So when you estimate your savings when applying for goverment tax credits for energy effiiciency know the difference.
Tax Deduction
A tax deduction is subtracted from the income, like any other deduction. Fro example, house payment interest, donations to charity. After your deductions, the actual tax liability is computed. Someone in the 35% bracket will then pay a 3rd of that net income as taxes to the government.
You can see from this scenario, that you didn’t reduce your tax bill by all your deductions. Only 35% of your deductions were counted.
Tax Credit
Tax credit on the other hand, is subtracted directly from your total tax liability. So, a tax credit reduces your tax bill by 100% of its value; not just 35% as seen above.
Federal Tax Credits for Energy Efficiency
Don’t miss the government Federal Tax Credits for Energy Efficiency. You might be eligible for all kind of Tax Credits.