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Tax & Compliance
Tax Credit
Definition
A dollar-for-dollar reduction in the amount of tax owed.
Overview
Unlike deductions that reduce taxable income, tax credits directly reduce your tax bill. A $1,000 credit saves $1,000 in taxes regardless of your bracket.
Example
A small business claims a $5,000 tax credit for providing health insurance, directly reducing their tax bill by $5,000.
Best Practices
Research available credits for your situation. Credits are more valuable than deductions.
Common Mistakes to Avoid
Confusing credits with deductions
Missing available credits
Not meeting eligibility requirements
Frequently Asked Questions
Are tax credits better than deductions?
Generally yes—credits reduce taxes dollar-for-dollar, while deductions only reduce taxable income.