What is the difference between a tax deduction, tax credit, and income exclusion

[kelly_brooks]

A tax credit is much more valuable than a deduction or income exclusion. A tax credit reduces your taxes, but a deduction reduces your taxable amount. Here's an example: Income: $40kTax deduction: $1kTax rate: 30%Tax: 0.3*(40-1) = $11,700Income: $40kTax credit: $1kTax rate: 30%Tax: 0.3*(40)-1 = $11,000Tax deductions and income exclusions have the same effect, but a different cause. Income exclusions apply to money that was not taxable in the first place (for example, some money earned in a foreign country), but deductions usually relate to spending and charity.

[thomas_smith]

Thanks Kelly!! Nice info I am looking for the same thing

thanks

[echinawholesale]

Originally Posted by kelly_brooks

A tax credit is much more valuable than a deduction or income exclusion. A tax credit reduces your taxes, but a deduction reduces your taxable amount. Here's an example: Income: $40kTax deduction: $1kTax rate: 30%Tax: 0.3*(40-1) = $11,700Income: $40kTax credit: $1kTax rate: 30%Tax: 0.3*(40)-1 = $11,000Tax deductions and income exclusions have the same effect, but a different cause. Income exclusions apply to money that was not taxable in the first place (for example, some money earned in a foreign country), but deductions usually relate to spending and charity.

a very useful information!

thanks kelly_brooks, thank you share out

[jinnah007]

Thanks for sharing use full Information..