Question

assessment
question 1 of 2
what is the key difference between a deduction and a credit?
select a response
deductions are used for future tax bills, and credits are used to help with past tax bills.
deductions reduce the amount of income that can be taxed, and credits reduce the amount of taxes you owe.
deductions report your spending, and credits report how much you earned.
deductions refer to money spent on goods, and credits refer to money spent on services.

Explanation:

Tax deductions lower the amount of your income that is subject to taxation, effectively reducing your taxable income. Tax credits directly reduce the total amount of tax you owe, dollar-for-dollar, rather than reducing your taxable income. The other options contain incorrect descriptions of how deductions and credits function.

Answer:

Deductions reduce the amount of income that can be taxed, and credits reduce the amount of taxes you owe.