As the year comes to a close, many people are thinking about their taxes that are due in the beginning quarter of next year. As you get your taxes ready for filing, people are gathering their credits and deductions that will give them the best tax return in the 2021 year. If you don’t understand what the difference between credits and deductions are, you need to read on. Mark Dicus & Company is here to talk about the differences so you can get prepared.
Tax Credit Overview
When you hear about a tax credit, it is a dollar for dollar reduction in your tax liability. This means that if you owe the government $2,000 and have a tax credit for $1,500 you will only owe the government $500 when all is said and done. Tax credits come in two forms, refundable and non-refundable. When you have a non-refundable credit, it means that if the credit brings the amount you owe the government down to $0 and there is still some of the credit left over, you don’t get a check for that amount. Only a refundable tax credit will give you money for what is left over after your bill with the government is settled. One of the most common tax credits that people qualify for is the child tax credit. This gives you a $2,000 credit for every child that you have.
Tax Deduction Example
Now that tax credits are covered, we will move on to tax deductions. A tax deduction will bring down your taxable income. If you have enough deductions, it can potentially put you in a lower tax bracket which could help you get a larger return. For a single filer, the standard deduction is $12,200. This means that if you made $50,000 that year and have $12,200 in deductions, your taxable income would then be lowered to $38,800. This could put you easily into a lower tax bracket. This is significant because it means that you will have more money in your pocket and a greater chance at a tax return.
Risk of Doing Your Own Taxes
The different deductions and credits that you could be eligible for are numerous. It can be difficult to know what you can and cannot claim unless you know the ins and outs of taxes. When you do your own taxes, there are likely credits and deductions that you are missing out on simply because you don’t know they are available to you.
Bookkeepers, Accountants & More in Salt Lake City, St. George, West Valley City, Provo, Orem, West Jordan & Greater Cedar City, Utah
When you rely on Mark Dicus & Company to handle your taxes, we will work with you to ensure you are utilizing every single credit and deduction that you could possibly qualify for. It is our goal to make sure you are getting as much on a tax return as is humanly possible within the legal bounds. Call us today to schedule your tax appointment.