tax deductions – Joseph T. Martin Income Tax Service

The Difference Between a Tax Credit and a Tax Deduction

Read a great post from Kailey Fralick on The Motley Fool breaking down the difference between two exciting things that reduce the amount of money you own the government. H/T @TMFKaily

32157159628_30737c4a57_o — Photo Credit Kevin Smith

From “What’s the Difference Between a Tax Deduction and a Tax Credit?”:

Tax deductions reduce your amount of taxable income in the eyes of the IRS, or in other words, how much money the government will consider in deciding what rate to use in taxing your income and how much cash to apply that rate to in tallying up your tax bill.

If you take a $1,000 tax deduction, your taxable income for the year will be reduced by $1,000. Depending on your annual income and how many tax deductions you qualify for, you could wind up in a lower income tax bracket, resulting in the government taxing a smaller percentage of your earnings.

Even if your tax deductions don’t change the bracket you occupy, allowing you to be taxed at a lower rate, they can still reduce the amount you owe in tax, by reducing your taxable income. You can figure out how much you’re saving by multiplying the value of the deduction by the income tax bracket you’re in. For example, a $1,000 tax deduction would be worth $220 off the tax bill for someone in the 22% income tax bracket.

I hope these definitions and examples help to clarify what these two commonly-heard tax terms mean–and what they could mean for you.

What is a tax credit?

Tax credits reduce the amount of taxes you owe, but instead of doing so by reducing your taxable income, tax credits reduce your actual tax liability, acting as a dollar-for-dollar reduction of your tax bill.

If you qualify for a $1,000 tax credit, the total in taxes you owe will be reduced by $1,000. So to answer the question at the start of this article: You’re much better off taking the $1,000 tax credit over the $1,000 tax deduction.

When it comes to tax credits, there are two main types: refundable and nonrefundable. Refundable tax credits offer the better deal, if you can take advantage of them, because if their value exceeds your tax liability, the government will actually refund you the difference. Nonrefundable tax credits may reduce your tax liability to zero, but the government does not refund you any excess once you hit zero.

One of the most common refundable tax credits is the earned income tax credit (EITC). It’s designed to help lower-income families, especially those with dependent children, save on their taxes. The maximum income requirement to use in qualifying for the EITC depends on your tax filing status and your number of qualifying children. This tax credit could be worth $519 for the 2018 tax year to couples with no children, $3,461 to families with one child, $5,716 to families with two children and $6,431 to families with three or more children. If these amounts exceed your total tax liability for the year, the government will give you the difference in your tax refund. This means it’s still worth filing a tax return if you will qualify for this benefit, even if your income for 2018 is less than $12,000, meaning you’re not legally required to file a tax return.

Tax Season 2018

33627520581_39a17f0720_o This is a very different year and confusion surrounding taxes seems to be at an all-time high. I’m writing not only because tax season is on its way, but to tell you that I am here to help.

I am now accepting appointments in my home office for tax preparation.
Call: 845-986-6158 or email: joemartintax@gmail.com to schedule your appointment.

You can do your taxes via Facetime / email and pay online via Paypal.

You can also process with me by mail.

→$10 credit for using Facetime, email, or postal preparation.

→$10 credit to any client who refers new clients to my business.

As always, I’m also happy continue to meet with you in-person.

I am very grateful to all of you who have already referred your friends and family.

Speaking of family, my daughter, Emily, will be working with me again this year. She is a certified tax preparer and excited to start her 3rd year in the family business.

The return price varies depending on the service. This year the average charge for most returns will be $200.00 long form and $80.00 short form.

**Please remember that due to new IRS security regulations, you need to supply a copy of your driver’s license for me to submit with your tax return**

The 10 Most Outrageous Tax Deductions of 2017

6736180389_013f2b1826_z — Deducing your deductions

The folks over at Accounting Today have discovered some pretty interesting deductions. I would not recommend any of these. All of these deductions are taken from a survey given to the Minnesota Society of CPAs to find the wackiest deductions people have tried to get away with in the past few years.

Riding Lawnmower – A Real Estate agent claimed he needed this one–not sold.
Hunting Property – The owner of a sporting goods store misfired with this one.
Pets – People have tried to claim them as dependents, but no dogs allowed!
Pop-up camper – Someone tried to claim this as a construction trailer–tents don’t count!
Graduation Party – Congratulations, but not even though your business contacts may be present at your son or daughter’s event this is not a business expense. You get an F for file correctly!
Winter coat and snow blower – A crafty new Minnesotan tried to claim these as moving expenses after transplanting from sunnier climes.
Sturgis – Even if you wear your bike company t-shirt to the biggest ride of all, it’s still not a business expense, drive on.
Grandchild’s tuition– While it may feel a lot like charity your grandkid’s school bill is not a deduction.
Cosmetic enhancements– Nip, tuck those right off your forms because most trips to the salon, injectables, tanning and other beautification ops are generally not deductible, though many have tried.
Chainsaw donation – One client tried to write-off a chainsaw donation to a children’s hospital, clearly going for an incorrect deduction was the least of his missteps.