taxes

What are tax credits?

 

What are tax credits?

The Bankrate.com financial term of the day is: "tax credits."

Tax credits are similar to store credits, only they come from Uncle Sam or your state tax department, not Macy's or Target. As with store credits, tax credits can reduce your bill -- in this case, your tax bill. Tax credits are often lumped together with tax deductions, but they're more valuable because they directly cut the amount of tax you owe. Deductions can do that, but not so directly, because they merely reduce the amount of your income that's subject to taxes.

Tax credits might be thought of as discount coupons for your taxes.

For answers to all of your tax questions, visit the Taxes section at Bankrate.com.

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