What is the key difference between a deduction and a credit?

A. Deductions are used for future tax bills, and credits are used to help with past tax bills.

B. Deductions reduce the amount of income that can be taxed, and credits reduce the amount of taxes you owe.

C. Deductions report your spending, and credits report how much you borrowed.

D. Deductions refer to money spent on goods, and credits refer to money spent on services.



Answer :

Final answer:

Deductions reduce taxable income, credits reduce taxes owed.


Explanation:

Deductions reduce the amount of income that can be taxed, while credits reduce the amount of taxes you owe. Deductions are subtracted from your taxable income, lowering the income that is subject to tax. On the other hand, credits directly reduce the amount of tax you owe dollar for dollar.


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