What Are Tax Deductions?

A tax deduction is not the same as a tax credit. Deductions are amounts which can be subtracted from your gross income such that it reduces the income, which is subject to income tax. The expenses deducted must be related to earning your income. If you earned $100,000 and your total income tax deductions totaled $10,000, your taxable income was $90,000. That's a pretty easy calculation. But in the same scenario, if you have a $ 10,000 tax credit, then it is not a deduction, but rather it can be used to offset any taxes, which you may owe.