What are tax credits & deductions?

Credits can reduce the amount of tax due. Deductions can reduce the amount of taxable income. Credits and deductions are available for individuals and businesses. The Inflation Reduction Act of 2022 provides new and extended credit and deductions for individuals and businesses, tax-exempt and government entities.

What are tax deductions?

Tax deductions enable you to reduce your taxable income. Each year, you can take the standard deduction or itemize your deductions. You may also be able to take above-the-line deductions, which don't require itemizing.

How does a tax deduction lower your taxable income?

A tax deduction lowers your taxable income, reducing how much of your income is subject to tax. The lower your taxable income, the lower your tax bill. The IRS allows taxpayers to lower their taxable income by choosing either the standard deduction or itemized deductions.