Itemized Deductions vs Tax Credits – What’s the Difference?

💡 Itemized Deductions vs Tax Credits – What’s the Difference?

📌 Itemized Deductions → reduce your taxable income:-
Examples:
• Medical expenses
• State & local taxes
• Mortgage interest
• Gifts to charity

👉 If your deductions are higher than the standard deduction then you select itemize.

📌 Tax Credits → reduce your tax liability directly (dollar-for-dollar) :-
Examples:
• Child Tax Credit
• Earned Income Credit
• Dependent Care Credit
• Education Credit
• Premium Tax Credit (health insurance)

✅ Example:
*Taxable income = $60,000
*Itemized deductions = $15,000 → lowers taxable income to $45,000
*Tax = $5,000 → apply Child Tax Credit $2,000 → final tax = $3,000

🔑 Remember:
*Deductions reduce income before tax is calculated.
*Credits reduce tax owed after calculation.