Another way to lower your taxes

Last week we talked tax credits and this week we’re covering the 2nd best option for lowering your taxes: tax deductions.

While credits reduce the amount of taxes you owe dollar for dollar, deductions aren’t quite as powerful. A tax deduction reduces your taxable income, which in turn reduces the taxes you owe. But a $500 tax deduction doesn’t mean you pay $500 less in taxes, it means the income you’re taxed on is reduced by $500.

For most people the standard deduction is the simpler and smarter choice. But for others itemizing deductions one by one will save them more money. What’s the difference and how do you know where you fall? We’ve got the answers right here.