2016 Credits versus Deductions for Individuals and Businesses

When it comes to filing our taxes, we've all heard of credits and deductions. But do you know what the difference is? 

- Deductions are subtracted from your income before you calculate the amount of tax you owe. 

- Credits are subtracted from the amount of tax you owe.

Deductions for individuals can be related to workinvestmentseducationhealth care, and of course itemized and miscellaneous deductions, some of which are property taxcharitable contributionsinterest expensemoving expensealimony, and disaster losses.

There are two types of tax credits: nonrefundable and refundable

- A nonrefundable tax credit means you get a refund only up to the amount you owe for taxes. 

- A refundable tax credit means you get a refund even if it is more than what you owe. 

Credits for individuals can be related to family and dependentshealth careincome and savingseducation, and home ownership.

To read more about credits and deductions for individuals, check out this informative IRS page. For information on credits and deductions for businesses, read here.

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