Financial Terms Everyone Should Know – Tax Deduction & Credits

Understanding and properly using tax deductions and credits can reduce the amount of tax you legally have to pay. A tax deduction reduces taxable income before computing your taxes. Typical “below the line” deductions include the standard deduction, based on your filing status, deducting mortgage interest, property taxes, state and local income taxes, charitable contributions and medical expenses.  There are also “above the line” deductions that you can claim, regardless of your filing status, including student loan interest, traditional IRA contributions, health savings account contributions, and alimony payments for divorces in 2018 and earlier.

A tax credit reduces the amount of tax that is due. Common tax credits include the Child Tax Credit, Child and Dependent Care Credit, Earned Income Credit, the American Opportunity Credit, and the Lifetime Learning Credit.

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