A credit is better and worth more dollar-wise than a deduction.
- Tax Credit: Reduces your tax liability dollar for dollar. So if you have a tax liability of $5000, a $2000 credit reduces your tax liablity to $3000.
- Deduction: Reduces the amount of income you are taxed on. So if you have $50,000 of taxable income taxed at 10%, that gives you a $5000 tax liability. A "deduction" of $4000 reduces your taxable income to $46,000. At 10% your tax liability would be $4,600. Thats $1,600 more you would pay in taxes, than a $2000 tax credit gets you.
