How to Maximize Tax Deductions and Tax Credits – LNK Tax Group
Paying income taxes is the obligation of all Americans. While we are happy to pay our fair share, no one wants to pay too much income tax. That is where tax deductions and credits come into play.
U.S. Congress has written the tax code; all 4 million words of it; to allow individuals and businesses to claim certain deductions and credits to lower their tax burden. Many of these deductions and credits are designed to help lower-income households, working parents, homeowners and people paying for college. There are dozens of deductions and credits available; the trick is figuring out whether you qualify for them.
The first step to maximize tax deductions and tax credits is to understand the difference between them.
A tax deduction is a qualified expense that lowers your taxable income.
If you donate money or goods to charity, for example, you can deduct the fair market value of those donations from your taxable income.
Other popular tax deductions include:
- Home mortgage interest
- State, local and real estate taxes paid
- Out-of-pocket medical expenses
- Student loan interest expense
- Moving expenses related to a job
Educate yourself on the difference between the standard deduction and itemized deductions. You may want to claim the standard deduction because it will save you more in taxes.
A tax credit provides a lump sum dollar amount to qualifying taxpayers and directly lowers the amount of tax you pay.
The child tax credit for example, pays $1,000 for each qualifying child in the household. If you owe the IRS $3,000, but you qualify for $2,000 in tax credits, then you only pay the IRS $1,000.
Other popular tax credits include:
- Earned Income Tax Credit (EITC) for lower income working families
- Child and dependent care credit to reimburse working parents for childcare costs
- American Opportunity and Lifetime Learning Credit to help cover the cost of college
- Homeowner credits for energy efficient improvements like solar panels and wind turbines
It is a good idea to contact the tax professionals at LNK Tax Group to help you with your tax preparation needs. Book a free 20 minute consultation with LNK Tax Group and let us help today!