which is the better benefit depends on the taxpayer s marginal tax rate if a taxpayer is entitled to a tax deduction of 100 and has a marginal tax rate of 30 the deduction will save the taxpayer 30 if the same taxpayer is entitled to a tax credit of 50 of an expenditure of 100 the savings is 50 however if the same taxpayer claims a tax credit for 20 of 100 the savings is only 20 
unlike tax deductions which reduce taxable income a tax credit reduces the amount of tax that you owe dollar for dollar examples of nonrefundable tax creditscommonly claimed tax credits that are nonrefundable include some nonrefundable tax credits such as the general business credit gbc and foreign tax credit ftc allow taxpayers to carry any unused amounts backward to a prior year and forward to future tax years however time limits apply to the carryover rules and they differ depending on the specific credit for example while unused portions of the gbc may be carried forward up to 20 years an individual can carry unused ftc amounts forward only up to 10 years 45strategies for maximizing nonrefundable creditsif a taxpayer has both refundable and nonrefundable tax credits the benefits can be maximized by applying the nonrefundable credits before claiming any refundable credits nonrefundable tax credits should be used first to minimize the taxes owed only then should the refundable tax credits be applied to reduce the tax liability even further to the point that the liability reaches zero if any refundable credits are unused after the total tax liability is completely offset the taxpayer will receive a refund check for the total amount of unused credits if the refundable credits were claimed first there is a risk that all the refundable credits will be used to offset taxes due and any remaining nonrefundable credits will only reduce the tax owed to zero the unused nonrefundable credits will not entitle the taxpayer to a refund low income taxpayers often are unable to use the entire amount of their nonrefundable credits nonrefundable tax credits are valid only in the year when they are generated they expire if unused and may not be carried over to future years for the 2023 tax year specific examples of nonrefundable tax credits include credits for adoption credits for energy efficient residential property and the saver s tax credit for funding retirement accounts 2