Both are beneficial to reduce the amount of taxes owed. Although, they are different in how they reduce your tax liability. A tax credit reduces the amount of tax owed to the IRS. For example, if you owe $10,000, a tax credit of $1,000 would be applied to the amount owed. Your new tax bill would be $9,000 owed to the IRS. A tax deduction would reduce your taxable income. For example, if your taxable income is $65,000 and you have a tax deduction, your taxable income would be reduced to $64,000. The amount of tax savings would vary based on the tax bracket of your taxable income and filing status, meaning you can save between $0 to $500 compared to the $1,000 from a tax credit.