💰 CPA Exam Prep

What is the difference between a tax "deduction" and a tax "credit"?

A They are the same thing
B A deduction reduces taxable income; a credit directly reduces tax owed
C A credit reduces income; a deduction reduces tax
D Neither reduces tax

✓ Correct Answer: Option B

Deductions reduce the amount of income subject to tax. Credits directly reduce the amount of tax liability dollar-for-dollar.

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