A tax credit is an allowance that reduces the final amount of taxes owed on your federal income tax return. That compares with a tax deduction that reduces your taxable income which then is multiplied by a tax rate to arrive at the tax due. Hence, to many a tax credit is worth three to six times more than a tax deduction in terms of tax dollars saved.
Tax credits are rare but a recent one has allowed tax credit for investing in energy saving technologies such as solar panels. An earlier one allowed credit for investing in coal seam gas recovery.
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