Tax deductible

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When something is tax deductible, you can take its value off of your income in order to reduce your tax liability. This is called a tax deduction. If you earn $40,000 in a year and have a $5,000 tax deduction, your taxes will be calculated on $35,000 of income instead of the full $40,000. Examples of tax deductible expenditures include:

A tax credit is similar to a deduction, but instead of reducing the amount of income used to calculate your taxes a credit actually gives you money off your taxes.