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TurboTax Specialist

Deductions vs. Credits - How Do They Affect My Refund

Tax credits and deductions are commonly confused, but each affect your refund in a different way. Here's a quick explanation:

 

Tax credits, dollar-for-dollar, reduce the amount of taxes you owe. If you claim more credits than you owe in taxes, you may end up owing nothing, and in certain situations, getting additional money back.

 

Tax deductions reduce the amount of income you'll be taxed on. If you make $45,000 and claim $2,000 in deductions, you'll be taxed as if you made $43,000 when you file. The IRS will pay you the difference in your refund.