When you’re preparing to file your taxes, it pays to know what deductions and credits you qualify for. Understanding how deductions and credits work can help you maximize your tax refund or reduce the amount of tax due. Knowing your eligibility can also help you make informed decisions about filing status and other aspects of your tax return.
What Are Tax Deductions?
Tax deductions are expenses that reduce the amount of income subject to taxation before the amount of tax owed is calculated. Generally speaking, most taxpayers will benefit from taking itemized deductions rather than the standard deduction. However, it's important to compare the two before making a decision as to which one will provide you with greater savings.
Common itemized deductions include medical expenses, state/local income taxes paid, mortgage interest payments, charitable donations and investment-related expenses. It’s important to note that individual deductions have different limits and qualifications depending on filing status and other factors so be sure to check with a professional if there is any question about whether you qualify for certain ones. One of our qualified agents would be more than happy to assist you CLICK HERE to sign up for a FREE Tax Estimate Today.
What are Tax Credits?
A tax credit is a type of payment that reduces the amount of tax due or increases a taxpayer’s refund. The value of a credit generally depends on filing status, income level, number of dependents claimed, etc. Tax credits are typically much more valuable than deductions; they can reduce the amount owed dollar-for-dollar while a deduction only reduces taxable income by the percentage set by your marginal tax rate. There are several types of credits available including earned income credits, child/dependent care credits, education-related credits, retirement savings contributions credits and many others. Again, depending on filing status or other factors some may not apply to all taxpayers so it's best to consult an expert when claiming them. CLICK HERE to book a FREE 10 minute consultation
Before filing your taxes this year it pays to understand what qualifies for deductions or credits in order to maximize your refund or minimize the amount due in taxes owed. Be sure to research each deduction or credit carefully before claiming them as rules vary based on filing status or other criteria; failing to meet certain requirements could result in inaccurate reporting which could lead to penalties or even an audit! Taking advantage of all available deductions and credits can save significant amounts in taxes so don't leave money on the table – do your research!