Unlike deductions and exemptions, which reduce the amount of your income that is taxable, tax credits reduce the actual amount of tax owed. So yes, you would be correct: They. Are. Awesome. Sometimes the government will offer a tax credit to encourage certain behavior, like a credit for first-time homeowners to encourage people to buy a house and boost the housing market, or a credit for replacing older appliances with more energy-efficient ones that are better for the environment. The amount of the credit depends on what it’s for, and credits don’t necessarily apply to everyone: they can be offered to individuals or businesses in specific locations or industries.
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