Tax Season 2024: Difference Between Tax Deduction and Tax Credit

Americans are getting ready to submit their taxes before the deadline set by the Internal Revenue Service (IRS) on April 15, 2024, for the fiscal year 2023. This announcement comes as the tax season is getting underway.

Taxpayers are encouraged to leverage various tools, including deductions and credits, to optimize their tax filings. While the terms “deductions” and “credits” are often used interchangeably, it’s crucial to understand their distinctions.

Under federal tax law, deductions allow individuals to subtract personal expenses or opt for the standard deduction provided by the IRS. Generally, deductions reduce taxable income, subsequently lowering the overall tax liability.

Tax credits, on the other hand, play a separate function and have an immediate influence on the total amount of tax that is payable or the amount of refund that is received. Following the completion of the calculation of the tax balance, credits subtract a predetermined amount, which can result in either a decreased tax liability or an enhanced refund. 

Read Next: D.C. Residents Receive Extra SNAP Benefits Through ‘Give Snap A Raise’ Initiative”

A Guide for Taxpayers

tax-season-2024-difference-between-tax-deduction-tax-credit
Americans are getting ready to submit their taxes before the deadline set by the Internal Revenue Service (IRS) on April 15, 2024, for the fiscal year 2023.

For those opting for deductions, the standard deduction amounts for the tax year 2023 vary based on filing status:

  • $13,850 for single taxpayers or couples filing separately (under 65 years of age)
  • $20,800 for heads of household
  • $27,700 for couples filing jointly (under 65 years of age)

Taxpayers also have the option to itemize deductions, particularly beneficial if personal deductions surpass the standard deduction, potentially resulting in a lower tax rate.

Understanding tax rates is paramount for accurate planning. For fiscal year 2023, the IRS has set the following tax percentages based on marital status:

  • 37% for income exceeding $578,125 ($693,750 for married couples filing jointly)
  • 35% for income surpassing $231,250 ($462,500 for married couples filing jointly)
  • 32% for income over $182,100 ($364,200 for married couples filing jointly)
  • 24% for income beyond $95,375 ($190,750 for married couples filing jointly)
  • 22% for income over $44,725 ($89,450 for married couples filing jointly)
  • 12% for income exceeding $11,000 ($22,000 for married couples filing jointly)

Navigating these intricacies ensures taxpayers make informed choices, potentially maximizing refunds and minimizing tax liabilities.

Read Next: Wrongfully Accused Woman Faces Uphill Battle Rebuilding Life After Road-Rage Charges Persist Online

About the author

Author description olor sit amet, consectetur adipiscing elit. Sed pulvinar ligula augue, quis bibendum tellus scelerisque venenatis. Pellentesque porta nisi mi. In hac habitasse platea dictumst. Etiam risus elit, molestie 

Leave a Comment