(Closed) Tax Credit?

posted 8 years ago in Legal
Post # 3
Member
11325 posts
Sugar Beekeeper
  • Wedding: February 2011

Okay there are two main types of money you can get back at tax time and they are different (within these two there are subsets, but this is the basics). 

There are deductions, and there are credits. Easiest way to explain is with a very simplified (and totally inaccurate) example. 

Let’s pretend you made 100,000 last year, and that your tax rate is 20% for the whole amount (again– would never happen but it makes it easy). If you have no deductions or credits: 

100,000 x 20% = you owe 20,000

Now lets say you have a 10,000 DEDUCTION. You deduct that amount from the amount of your EARNINGS, so it looks like this: 

100,000 – 10,000 (deduction) = 90,000 x 20% =  you owe 18,000

Now lets say you have a 10,000 CREDIT. this is money that you take right off of the amount due. 

100,000 x 20% = 20,000 – 10,000 (credit) = you owe 10,000 

So a credit is much much better than a deduction! hope that helps

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