A Little Insight on Your Federal Tax Returns

Sat, Aug 31, 2013

General Legal Issues

Some rights reserved by OldmaisonFederal tax returns continue to mystify many Americans. Unless you are a tax professional, you probably find yourself confused by some part of them or another. You might be asking yourself, “Do I really qualify for this?” or “How do I fill this part out?” or “What does this mean?” You are not alone.

Mistakes on your taxes can cost you money. Deliberate errors can cost you even more than that. That is why it is important to consult with tax professionals or research the process carefully to legally maximize your return’s amount and submit it without error.

Where do you turn when you have questions about your tax returns? The IRS website is a good place to start. Their FAQ is filled with good info. Even basic concepts can be confusing, because it is not like you took a class in high school about doing your taxes. In addition, there are large differences between business and individual taxes. (For this post, we will be discussing personal taxes, not business taxes.)

A common question is what is the difference between a deduction and a credit. A deduction reduces the taxes you owe the federal government by reducing your taxable income. Everyone has a standard deduction amount they can take. If you wish to take a different deduction by adding different deductions, you can itemize your taxes. But itemizing does not always help you. A tax professional is the best person to help you with what you qualify for and whether you should itemize, but this article on MSN Money discusses some of the deductions you might not know about. The list includes educator expenses, health expenses, investment expenses, etc. It often pays to keep track of receipts and other documents to bring to your accountant when tax times rolls around. You never know what might help you out in the end.

A credit also reduces your final tax bill. However, it is different from a deduction in that it reduces your tax bill by actual dollars—the credit amount is actually deducted from your tax amount. Credits include the child tax credit, the dependent care credit, the earned income credit, and more. Credits are also governed by many sets of rules and a tax professional is helpful in determining what you qualify for. This article on the DailyFinance tells you more about tax credits that might help you save money.

Something you may have heard about is that getting an IRA can help reduce your tax bill. That works because of a deduction on your taxes, as it helps reduce your taxable income. An IRA is a great way to save for retirement and help your tax bill now. You must get the right type of IRA though; for example, a Roth IRA does not count. Moreover, there are certain limits and qualifications–like are you using a work plan also? However, an IRA is definitely worth checking out because it may help reduce your taxable income. This is explained in this article on Kiplinger.com.

Thinking of going back to school? That can greatly help your tax bill, since education expenses are often able to get you a credit on your taxes. This is due to the American Opportunity Credit, currently extended through 2017, and the Lifetime Learning Credit. Then there are other education expenses that might get you a deduction on your taxes.

Talk with a tax professional about how credits and deductions might help you.

Attorney Christopher D. Smith is a Lakewood Ranch, Florida attorney with SmithLaw Attorneys. He concentrates in bankruptcy, civil litigation, probate, and elder exploitation cases in the Sarasota and Bradenton area. Call 941 907-4774 to learn more and to ask about our free consultations.

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