By Vera Wilson

A tax credit is a good thing. It reduces your tax bill dollar-for-dollar. Compare this to a tax deduction, which only reduces the amount of your income that is subject to tax.

Here’s an example of the difference: For simplicity’s sake, let’s say your total income is $100,000 annually. Now let’s suppose that includes $15,000 of retirement income of which your state allows a deduction of $4,000, bringing your total taxable income to $96,000.

Your state’s tax table tells you that you owe 5% of that, which comes to $4,800. Now let’s say the state also offers a tax credit for veterans who own a home, and after completing their handy worksheet, you see you get a credit of $4,000. That comes straight off your tax bill of $4,800, leaving you with a tax bill of $800.

[Related: MOAA's 5-Part Series on Tax Code Changes]

Tax credits are a way that any level of government can acknowledge individuals they feel might deserve recognition or need a helping hand. Common examples are veterans, seniors, the disabled, and low-income families.

It’s also a way to acknowledge behavior the government might want to encourage. For instance, you might be eligible for a tax credit if you put solar panels on your home, go to college, adopt a child, or restore a historic home. Then there are less common tax credits, such as:

• The Oregon Veterans’ Home (OVH) Physicians credit, which states physicians who provide medical care to OVH residents might be eligible for a $5,000 credit.
• Minnesota’s Beginning Farmer Management credit, which is available to someone who’s started farming in the past 10 years.
• Utah, which has the country’s largest average household size, has tax credits for large families and at-home parents.
• Want to build a riverboat for gambling? Indiana has a credit for that.

[RELATED: MOAA's State Report Card and Tax Guide]

Property tax credits are common at the county level; sometimes all you need to do is be a homeowner to get a credit.

The point is, don’t neglect researching the tax credits available to you at the federal, state, and local levels. But like anything related to taxes, read the fine print before you start building those beehives (see Virginia’s tax credits).

Vera Wilson is freelance writer based in North Carolina. She frequently writes on financial topics.