Tax deductions and tax credits are obviously two different things – but what the differences are and how they apply to small businesses can often be misunderstood. To clarify, tax deductions cut your taxable income by a percentage based on your tax bracket, and become more valuable as your taxable income rises. For example, if you’re in the 15% bracket, each dollar deduction cuts your tax by 15 cents. If you’re in the 35% bracket, each dollar deduction cuts your tax by 35 cents. Tax credits are geared toward the bottom line. They cut your actual tax, dollar for dollar making them more valuable to those taxpayers in lower tax brackets.