I know this is tax 101 for many of you, but I wanted to link to this post on the difference between a tax credit and tax deduction for those of you who aren't sure. Here's what Kiplinger's has to say:
A tax credit lowers your tax bill dollar for dollar. A deduction shaves money off your taxable income, so the value depends on your tax bracket. If you're in the 25% bracket, a $1,000 deduction lowers your tax bill by $250. But a $1,000 credit lowers the bill by the full $1,000, no matter in which bracket you are.
Dollar-for-dollar tax reductions are better than a percentage decrease. That's why I LOVE tax credits -- I wish there were more of them. ;-)
I have a question: if I used money put into my 529 plan to pay for miscellaneous expenses (books, fees) for my son, can I still claim the Hope credit?
Posted by: Melissa | April 17, 2007 at 05:17 PM
If you qualify for the tax credit. At that bracket aren't you phasing out most credits?
Posted by: li | April 17, 2007 at 10:55 PM
so what are some examples of tax credits?
Posted by: young college student | April 18, 2007 at 12:05 AM