What is the difference between a tax deduction and a tax credit?
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Explanation
A tax deduction reduces your taxable income, a $1,000 deduction saves you $220 if you're in the 22% bracket. A tax credit reduces your actual tax bill dollar-for-dollar, a $1,000 credit saves you exactly $1,000. This makes refundable credits (like the Earned Income Tax Credit) among the most valuable benefits in the tax code.
Capital gains tax rates depend on how long you held the asset. Long-term capital gains, on assets held over one year, are taxed at preferential rates of 0%, 15%, or 20%.