Question

question 3 of 6
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 borrowed.
○ deductions refer to money spent on goods, and credits refer to money spent on services.

Explanation:

Tax deductions lower the portion of your income that is subject to taxation, effectively reducing your taxable income. Tax credits directly decrease the total amount of tax you owe to the government, providing a dollar-for-dollar reduction on your tax liability. The other options incorrectly describe the purpose and function of deductions and credits.

Answer:

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