Definition: An amount that directly reduces tax liability, subject to the credit's eligibility, limitation, and refundability rules.
Example
A permitted $1,000 credit reduces a $4,000 tax liability to $3,000 before other adjustments.
Keep the distinction clear
A deduction reduces the income on which tax is computed; a credit reduces the tax itself. A nonrefundable credit and a refundable credit can have different results.
Related terms
Keep studying
References: IRS: credits and deductions
Comments
0 comments
Article is closed for comments.