As we draw nearer to doing our taxes for 2010, it is important for us to understand the difference between a tax deduction and a tax credit.
A tax deduction reduces your taxable income, and the actual amount of taxes you save depends upon your personal tax rate. If you are in a high tax bracket, a tax deduction can provide you with substantial tax savings, but if you are in a low tax bracket the savings will be lower. If you have no taxable income, a tax deduction does not benefit you at all.