Introduction to Adjustments, Deductions & Credits
Why Tax Benefits Matter
After calculating gross income, taxpayers may qualify for several tax benefits that reduce their tax burden. These benefits generally fall into three categories: adjustments to income, deductions, and tax credits. Understanding the differences is essential because each affects taxes in a different way.
Note
Tax credits are generally more valuable than deductions because they reduce the tax bill dollar for dollar.
Summary
Adjustments lower AGI, deductions lower taxable income, and credits lower the final tax liability.