Which of the following directly reduces a taxpayer's tax liability?

Tax credits directly reduce a taxpayer's tax liability by providing a dollar-for-dollar reduction in the amount of taxes owed. Unlike tax deductions, which lower taxable income and may result in a reduced tax liability, tax credits apply directly to the tax amount calculated after deductions have been considered.

For example, if a taxpayer owes $1,000 in taxes and has a tax credit of $200, the final tax liability is reduced to $800. This direct reduction effect makes tax credits highly beneficial for taxpayers seeking to minimize the amount they owe to the government.

Tax deductions, while lowering taxable income, do not directly correspond to a specific reduction in taxes owed, as their effect varies based on the taxpayer's tax bracket. Tax liability is simply the amount of tax owed before considering any deductions or credits, and tax bases refer to the values or amounts used to calculate taxes, not an element that reduces the tax owed.

Thus, tax credits stand out as the option that distinctly lowers the actual tax liability on a dollar-for-dollar basis.