It is easy to lump exemptions, deductions, and credits into the same basket of tax-saving mechanisms, but they are distinctly different. Here are the simplified differences:
Let's look at the three categories in more detail:
Some savings, like education costs, can be redeemed as either a credit or a deduction, depending on qualifications for each. Therefore, when trying to decide which is best, remember this hierarchy from generally most effective to least credit, above-the-line deductions, exemptions, and below-the-line deductions. However, all of these are tax savings so take all to which you are entitled, regardless of their size. If you need help in determining how to best utilize the exemptions, deductions and credits that may be available to you, seek out a qualified tax professional. Keep checking MoneyTips.com for the latest on the new 2018 tax laws.
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Originally Posted at: https://www.moneytips.com/exemptions-deductions-and-credits
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