NC State Economist Dr. Mike Walden – “Deductions and Credits”

 

Mary:  I’m Mary Walden with economist MW welcoming you to the economic perspective.  Today’s program looks at deductions and credits. Mike, the proposed new federal income tax bill, now working its way through Congress, makes many changes to tax deductions and tax credits.  Review for us the difference between these two tax terms.

Mike: Summary Answer

  1. a deduction reduces a person’s taxable income, so there is less income to tax
  2. in comparison, a credit directly reduces the amount of taxes owed
  3. the value of a deduction depends on the person’s tax rate – for example, a

deduction of $1000 with a tax rate of 12% – which the rate is for married

households earning up to $90,000 – would be worth $120 in saved taxes

  1. in contrast, a tax credit of $1000 reduces taxes by $1000
  2. new tax bill would eliminate or curtail many kinds of specific deductions

as well as the personal exemption for each person in the household, which

is like a personal deduction

  1. but in exchange, it would double the standard deduction everyone gets to

$24,000 for a married couple and increase the tax credit per child from $1000

To $1600

  1. means would have to crunch the numbers to see if win or lose with the plan
  2. I’m MW

Mary:  And I’m Mary Walden for N C State Extension


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