Your Tax Bill Is Bigger Because You Don’t Know This One Difference

Let’s get one thing straight: a tax credit and a tax deduction are not the same thing.

They don’t do the same thing. They don’t save you the same amount of money. And if you’re mixing them up, you’re probably handing the IRS more than you should.

Here’s how to tell the difference, and why credits are where the real money lives.

What a Tax Deduction Does

A deduction lowers how much of your income is taxed.

Let’s say your business made $100,000 this year. You spent $20,000 on legit business expenses (office rent, software, contractors, etc). That $20,000 is a deduction. It brings your taxable income down to $80,000.

Nice, right? But it only saves you a percentage of what you spent. If you’re in the 22% tax bracket, that $20K deduction saves you about $4,400 in taxes.

What a Tax Credit Does

Now here’s where it gets good.

A credit cuts your actual tax bill. Dollar for dollar.

Let’s say your tax bill comes out to $10,000. If you qualify for a $2,000 tax credit, you don’t pay $10K. You pay $8K. Done. It’s a straight-up subtraction… not a maybe, not a percentage.

That’s why tax credits are gold.

Not All Credits Are Created Equal

There are two flavors: refundable and nonrefundable.

  1. A nonrefundable credit reduces your tax bill, but only to zero. If you owe $1,500 and your credit is $2,000, the extra $500 disappears.
  2. A refundable credit goes further. If you owe $1,500 and the credit is $2,000, the IRS cuts you a check for the extra $500.

You read that right. They send you money.

Common Credits You Might Be Missing

You’re probably already claiming deductions. But credits? They’re often overlooked, especially if you’re doing your own taxes or relying on generic software.

A few to check out:

  • Employee Retention Credit (ERC): Still available retroactively for some
  • R&D Tax Credit: Great if you develop products or tech
  • Clean Vehicle or Energy Credits: Especially if you bought business-use EVs or upgrades
  • Work Opportunity Tax Credit: If you hired from certain target groups
  • Family and medical leave credits, health care credits, and more

Some require planning. Others require filing the right form. None of them work if you don’t know they exist.

So Which One Saves You More?

Easy: credits win. Every time.

Deductions lower what’s taxed. Credits lower what you owe.

If you’re only focused on deductions, you’re playing defense. Credits are the offense, and the touchdowns are bigger.

Want to Know Which Credits You’re Missing?

You don’t need to read the whole tax code. You just need someone who knows where to look.

Schedule a quick consult with our team. If there’s a credit hiding in your numbers, we’ll find it, and show you how to claim it before it disappears.

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