Friday, April 15, 2011

A little tax nomenclature

For your tax-weekend water fountain discussions...

A Tax Return is what you file with the IRS to report your income, deductible expenses, etc. every year. A Tax Refund is what you hope you will get back after filing your return-- it is a refund of the money you overpaid. Tax Returns and Tax Refunds are not the same thing.

A Tax Deduction is based on an expense that you had which qualifies you for a certain percentage of deduction from your overall tax debt-- they only reduce the amount you owe. A Tax Credit is based on a circumstance that qualifies you for payments from the IRS; they may result in additional funds beyond a refund. Tax Deductions and Tax Credits are not the same thing.

These get confusing, and it's common to hear them being used interchangeably-- but they aren't synonyms.

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