Two commonly misunderstood tax terms are deductions and credits. What’s the difference? Deductions reduce the amount of a taxpayer’s income before tax is calculated. For example, on your individual return, you can take the standard deduction or itemize deductions depending on which strategy will most reduce your taxable income. Credits, on the other hand, reduce the actual tax due, dollar-for-dollar, generally making them more valuable than deductions. Certain credits, such as the Child Tax Credit, are partially or fully refundable. This means that if a taxpayer’s bill is less than the amount of the credit, he or she may receive the difference as a refund. Contact us with your tax questions. © 2025