Like most people, you probably get excited when you find that you can lower your taxable income with the use of tax credits and deductions. Maybe you don’t even realize how many tax credits or deductions are available to you. There are many that might not understand what tax credits and tax deductions are. Mark Dicus & Company is here to shed some light on the subject. We would like to talk about what tax credits and deductions are as well as what sets them apart from one another.
Tax Deduction
While most people have heard of the term ‘tax deduction,’ they might not understand what it actually means. This is an expense that you have had that can be used to help reduce your taxable income. Business owners can utilize deductions extremely well as they have many expenses that work together to keep their business running. Many of those expenses are tax deductions to help lower their taxable income. This means that you won’t be left with a hefty tax bill in April.
Tax Credit
The biggest difference between a tax credit and a tax deduction is that a credit is an amount of money that is taken directly off of your tax bill rather than your taxable income like a tax deduction does. For instance, if you owed the government $2,000 but you have one child, you can use the child tax credit, which is worth $2,000, to zero out that tax bill you would have had otherwise.
So Which is Better?
If you were faced with the decision to take a tax credit of $2,000 or a deduction of $2,000 most people would rather have the credit. This is because it will have a greater impact on your tax return since the credit is a dollar for dollar trade off. The deduction would just lower your taxable income. While it can be helpful, it isn’t nearly as impactful as a tax credit is.
Itemized & Standard Deductions
Almost everyone is eligible for a standard deduction. Depending on your filing status, the value of the deduction is going to be different, but within filing statuses everyone receives the same amount. When it comes to itemizing, here are many different itemized deductions that a person or couple might be eligible for. Certain circumstances can lead a person to want to itemize their deductions. Here are some of those circumstances:
– Mortgage interest
– Property taxes
– Student loan interest
– Medical & dental expenses beyond 7.5% your gross income
– State income taxes
– State sales and local taxes
– Charitable donations
Tax Preparation, Filing, Planning & More in Salt Lake City, St. George, West Valley City, Provo, Orem, West Jordan & Greater Cedar City, Utah
If you are struggling to prepare your taxes and aren’t sure that you’re taking advantage of all the deductions and credits that are available to you, you can turn to Mark Dicus & Company to help you sort all of it out. Call us today!