If you have a $10,000 income tax liability and find an additional $1,000 “deduction’, you reduce your tax liability by the amount of your tax bracket. If you are in a 25% tax bracket, the additional $1,000 deduction reduces your tax bill by $250. If you have a $1,000 tax “credit’, your $10,000 tax bill is reduced by $1,000. The “credit” is applied directly to your tax bill, the deduction is applied to your taxable income.