Taking Advantage of Tax Credits and Deductions

While taxes might seem like they are a long way away, several months at least, tax time always seems to arrive sooner than anticipated every year, and somehow, you always seem to find yourself frantically trying to get everything together so you can file your taxes on time, and trying to figure out how to maximize your savings while minimizing how much you have to pay.

During the tax process you have probably heard about tax deductions and tax credits, however, what do you really know about them? While they both work to reduce the amount of tax owed, they both function very differently and impact your overall tax liability in different ways. So, what are the differences? 

A tax deduction is there to reduce your taxable income and is often tied to specific expenses such as charitable donations, mortgage interest, medical expenses, and contributions to retirement accounts. These deductions lower how much of your income is taxable, so if you make $50,000 and have $2,000 in deductions your taxable income would be $48,000 which can help lower how much you owe in taxes. 

A tax credit, however, they aren’t lowering your taxable income, but actually reduce the amount you owe in taxes, kind of like having store credit or a gift card from a store, the amount you pay is the same, but not all of it is coming out of your pocket. Tax credits can be broken down into refundable and nonrefundable. Nonrefundable tax credits bring down how much you owe, but if you have extra credits after paying the full amount, you do not receive the rest of it. For example, if you owe $500 and you have $1000 in tax credit, the credit would pay the $500 but you would not get the other $500. Refundable, on the other hand, you do get that money. So if you owed $500 and had a $1000 credit, it would pay the $500 and you would get the remaining $500. 

When it comes to taxes, you want to get as many breaks as you can get. Use these deductions and credits to your advantage. 

Trying to figure out taxes can be frustrating and time consuming, that’s why it’s never too early to start gearing up for tax season. At Irvine Legal, we work with you to help make sure you are maximizing your tax credits and deductions to keep as much of your hard earned income as possible. 

Call today to help with tax planning, preparing, and filing. 

Irvine Legal

385-333-7966

joshua@irvine-legal.com