Tell a tax credit from a tax deduction: test your skills
A deduction lowers taxable income; a credit lowers the tax itself. Dollar for dollar, a credit is usually worth more. Answer each question to see the explanation; your score appears at the end.
This test checks that you can
- Explain how deductions and credits differ
- Value a deduction at your marginal rate
- Tell refundable from non-refundable credits
- Practice
1. A tax credit reduces…
- Practice
2. A $2,000 deduction at a 12% marginal rate saves about…
- Practice
3. A refundable credit…
- Key idea
4. Which statement best explains "Deduction: income; credit: tax"?
- Key idea
5. Which statement best explains "Credits are dollar for dollar"?
- Key idea
6. Which statement best explains "Refundable credits can pay you"?
- Action plan
7. In the action plan, which step comes first?
- Mistake to avoid
8. Which of these is a mistake this lesson warns against?
- Mistake to avoid
9. Which of these is a mistake this lesson warns against?
You owe $800 before credits and have a $1,200 refundable credit. What is the result?
Show the answer
A $400 refund
$800 − $1,200 = −$400, refunded because the credit is refundable (subject to its rules).
List one credit you might qualify for and check its current rules on IRS.gov.
More tests in this bootcamp
- Read tax brackets one layer at a time
- Tell a tax credit from a tax deduction
- Compare the standard deduction with itemizing
- Check sales tax before the receipt surprises you
- Keep the receipt records that matter at tax time
- Understand why holding time changes capital gains taxes
- Understand tax-loss harvesting and the wash-sale rule
- Plan for taxes as a W-2 employee or 1099 contractor
- Keep charitable giving records and understand the tax rules
- Know when your taxes need a professional
- Final exam: Taxes