Tax Deductions or Tax Credits?

Tax credits and tax deductions are powerful tools to reduce how much you owe the IRS—but they work very differently. Understanding the difference can significantly impact your loan eligibility and tax planning strategy.

Here’s the difference:

• Tax Deductions lower your taxable income.
• Tax Credits reduce the actual amount of tax you owe.

This is a critical distinction, especially when you're applying for loans. Deductions reduce your reported income, which can affect how much you're approved to borrow. Credits, on the other hand, lower your taxes without touching your income figure.

Tax credits are especially powerful because they don’t reduce your reported income, making them a smart strategy for those planning for both tax savings and financial reporting accuracy.