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If you haven’t filed your income taxes already, you’re close, right? Depending on your refund amount or amount you owe, you’re probably thinking, "How can I do better next year?"
      For starters, take a look at tax deductions and tax credits. Both provide some tax relief, but they’re by no means created equal.
      A tax deduction--such as home mortgage interest, state income taxes, or itemized and standard deductions--reduces your taxable income. So you subtract a tax deduction from your adjusted gross income.
      A tax credit--such as for child or dependent care--reduces your tax liability, dollar for dollar.

Here’s how they work. (The tax deduction example is based on a 28% tax bracket.)



Tax deductions reduce income.
Tax deduction
$1,000
x Tax rate
28%
= Tax savings
$280



Tax credits reduce taxes.
Tax credit
$1,000
= Tax savings
$1,000
The illustration shows that tax credits provide you with more tax savings than do tax deductions. Take advantage of both and, as with any tax situation, consult your tax adviser or the Internal Revenue Service for more information about these and other tax provisions.


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