Questions: What are exemptions, deductions and credits?
Answer: In short, the main difference among them is that both exemptions and deductions only reduce your taxable income while tax credits actually reduce your actual tax.
Exemptions, or also called personal exemption, were phased out in 2017 Tax Act law.
For example, Your gross income is $18,000 and you are filing single with $400 401K retirement credit.
The standard deduction is $12,400 for 2020. Your taxable income is reduced by the standard deduction. ($18,000 – $12,400 = $5,600 taxable income). Since you are in the 10% tax bracket, you were supposed to pay $560 to IRS. But you have a $400 credit which reduces your tax to $400
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