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What’s the difference?
Both tax credits and tax deductions can reduce the amount of tax you must pay.
Deductions reduce the amount of income you pay taxes on, which in turn can reduce your tax.
Credits are a dollar-for-dollar reduction in the amount of tax you owe.
If you had an income of $30,000 and took a $1,000 deduction, you don’t have to pay tax on that $1,000 of income. The deduction could save you $200 (assuming a 20% tax rate on that $1,000).
On the other hand, a $1,000 credit would reduce the tax you owe by that $1,000. So if you owed $3,000 in taxes, you’d now owe $2,000 and save $1,000.
Many people refer to deductions as “write-offs” or they use all these terms interchangeably. Understand they all impact you differently.