are a type of write-off that reduce the total amount of income you're expected to pay taxes on. Things like charitable donations, moving and job hunting expenses, as well as child care costs and mortgage interest are all types of tax deductions you may be able to claim if you qualify.
are also considered tax write offs that lower the amount you end up paying, or in some cases, increase the amount you are returned each year. Unlike tax deductions, however, which reduce your taxable income, tax credits lower the total amount of taxes owed.
State governments, as well as the federal government, offer tax credits as incentives -- for instance, the Cash for Clunkers program provided a credit of up to $4,500 to anyone who traded in an older vehicle for a newer one, in order to encourage taxpayers to drive more fuel-efficient cars.
Gaining a better understanding of how taxes work will allow you to plan your finances throughout the year in a way that ensures you aren't hit with a huge bill from the IRS
in April. Taxes don't have to be a bad thing; you can use tax credits and deductions to actually earn money back each year -- just be sure you're honest on your tax return!