Answer
Tax credit reduce the liability of tax by an amount to an amount,where as tax deductions reduce the taxable income value on a percentage basis.
Work Step by Step
Tax Credit:
Tax credits the benefit provided by the government to the taxpayers for their taxable income. A tax credit depends on the course of credit, provided to an individual or a business entity. It can be of three types namely, non-refundable tax credit, refundable tax credit, and partially refundable tax credit.
For example, if a person ‘X’ has a tax credit of \$2,500, X can save taxes worth $2,500.
Tax deductions:
It is the percentage of the fixed amount, which is permitted by the tax authorities. The taxpayer can deduct the amount as a deduction from the adjusted gross income to determine the taxable income. These can be of two types: Standard tax deductions and itemized tax deductions.
Standard deductions are the fixed amount that government allows to taxpayers according to their category,whereas, itemized deductions are used when the amount of deduction is higher than the standard deductions and each item are listed separately.
