Tax Credit

A tax credit is subtracted directly from the tax calculated. If the bill comes to 1,000 and the credit is 200, you actually pay 800.

It is easily confused with a deduction, but the effect differs. A deduction reduces income before tax is calculated; a credit reduces the tax after the calculation is done.

That makes them favour different people. Deductions benefit those on higher rates more, while a credit removes the same amount regardless of income, which relatively favours lower earners.

Common categories include pension savings, medical costs, education, donations and rent. Items and limits vary by country and change over time, so they are worth checking annually.

Documentation is what people miss. Spending it does not qualify without records. Keeping receipts for cash purchases and donations turns directly into money. Limits matter too. Spending more does not reduce tax indefinitely, so filling each category to its cap and directing the rest elsewhere is more efficient. Deciding which categories to use at the start of the year, rather than scrambling in December, means missing fewer of them.