In addition, the sum of money you save also depends on whether your deduction is an adjustment to your income or actually an itemized deduction. Because if you actually pay $1,000 in student loan interest, you have the possibility to claim that deduction precisely whether you decide to itemize or not.
As for charitable donations that aren’t itemized, they aren’t reduced from your tax bill. On the other side, tax credits do minimize your tax bill by 1 for every $1 of credit. If you opt for a tax credit, it is essential to assess whether your credit is refundable or non-refundable.
In case we’re referring to a non-refundable credit, your tax liability can’t be minimized below $0, but when it comes to refundable credits, there’s a different story. A refundable credit reduces your tax liability below zero. To put it simply, Uncle Sam will pay you.