Many taxpayers ignore tax deadlines and pay their taxes at the end of the year, putting themselves in a difficult position.
However, if you file your taxes on time, you can relax, knowing you won’t have to deal with any end-of-year surprises.
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There are numerous ways to decrease the tax burden, with tax deductions and tax credits being the most popular ones. Many people confuse the differences in both phrases and frequently use them interchangeably. However, they’re two very distinct mechanisms. Both indeed decrease what needs to be paid in taxes, but tax deduction lowers the taxable income for the year.
Meanwhile, tax credit offers a dollar-for-dollar reduction of the owed tax, helping increase the refunds in some cases. A solid strategy made after consulting experienced tax planning advisors or tax accountants can help you save some cash. Let’s look at some of the key things that help differentiate tax credits from tax deductibles.
Taxation 101
What’s a Tax Credit?
Simply put, tax credits directly decrease the tax amount owed, offering a dollar-for-dollar reduction. Qualifying for a $4000 tax credit would imply that you’ll save $4000 on the tax bill. If not, you’ll get a tax refund. For instance, if you qualify for a refundable tax credit of $1500 and you owe only $1000 in taxes, you’ll receive a tax refund for the $500 credit in excess on the tax bill.
However, not all tax credits are refundable. If the tax credit is non-refundable, it might reduce the tax bill down to $0, but even if the credit was worth more than what you owe, non-refundable credits don’t result in checks from the IRS for the difference. Common refundable tax credits include child tax credits and earned income tax credits. Child and dependent care credit and saver’s credit are some examples of non-refundable credits.
American opportunity tax credit is another tax credit that’s often listed as a partially refundable tax. It’s designed to help families pay for higher education expenses worth up to a limit. If you are or have a dependent who qualifies eligible student, and the tax credit is more than the owed taxes, a significant percentage of the leftover amount could be issued as a refund.
What’s a Tax Deduction?
Tax deductions help lower the taxable income for the year. You can either claim the standard deduction or itemize the deductions. Standard deductions are the ones taxpayers can claim automatically, depending on their filing status. A married couple filing a joint tax return is considered one of the largest standard deductions. Conversely, itemizing refers to listing individual expenses you’d want to write off on the return. Itemizing typically makes sense when the total deductible expenses are higher than the standard deductions.
Some of the above-the-line and itemized deductions include mortgage loan interest, charitable donations, dental and medical expenses, contributions to health saving accounts or traditional IRAs, property and real estate taxes, educator expenses deduction, job search expenses, and more. Above-the-line deductions can be claimed separately even if you’re not itemizing the deductions. However, the ability to claim some deductions could be limited depending on factors like household income and filing status.
Tax brackets determine the tax rate paid on various chunks of the income. When the marginal tax system increased tax rates as income rises, tax deductions could lead to higher savings for those with higher incomes. Professional tax planning consultants at Nidhi Jain CPA can help you determine whether you should itemize deductions or take the standard deductions by comparing your allowable itemized deductions to the standard deduction amount.
Our tax accountants are CTC-certified and can help you with your tax filing chores while helping you limit your tax liabilities in several ways. We offer various tax preparation and advisory services for personal or business tax filing in Bay Area. People across the US rely on us for comprehensive bay area bookkeeping and accounting services, tax resolution services, payroll services, business formation, and back tax solutions.
You can also call or email us to discover how our cloud-based solutions and cutting-edge AccountantWS software can help you achieve your financial goals while remaining compliant cost-effectively.
Running a business and filing taxes each year is challenging.
It’s critical to plan ahead of time for tax season to make informed decisions at the end.
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Whether you’ve just welcomed a new member to the family or shifted into your dream house, your bank is liable to reflect the changes in various ways. Many of life’s most momentous events can affect your finances, some more unexpectedly than others. Ever wondered how significant life events could impact your tax situation? Here’s what you need to know.
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Payroll is much more than just paying the employees the hours worked or their salary. It comprises health insurance, social security, and taxes, among other factors affecting remuneration. Effective payroll management requires ensuring the employees receive accurate payments on time and in compliance with the applicable laws.
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Payroll is a time-intensive process because you have to complete the necessary tasks and ensure compliance with tax and legislative requirements.
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Are you ready to take your innovative business idea to the next level? The thought of being your own boss is exciting, but before starting your journey, you need to decide the right structure for your business. Your decision will have far-reaching repercussions for your business, so it requires careful selection. Factors like tax treatment, regulations, personal liabilities, etc., are governed as per the business entity’s form. It could be a partnership, corporation, sole proprietorship, or you could take the formal step of forming a Limited Liability Company (LLC).
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Regardless of how far the deadline for filing your taxes may be, the two best times to get a jump on tax planning are ‘now’ and ‘all the time.’ Taxes are the last thing overworked business owners want to think about once they’ve submitted their returns. However, thinking about tax season and planning early can make a monumental difference for your bottom line. Depending on the circumstances, it could also lead to a significant reduction in taxes, which means the availability of more money for streamlining business growth. Before diving into the sea of benefits outsourcing tax planning offers, let’s understand what the term entails.
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Use tax planning targets to evaluate your income, establish strategies for the best tax returns, and reduce the overall amount that you pay in taxes for your company.
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Sustaining a successful investment is all about looking for ways to reduce your expenses and increase your gains. One simple way to achieve this is to invest in tax-efficient avenues which reduce your tax burden by increasing the tax returns and helping you deduct tax credits from your taxable income.
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Filing your taxes for the first time isn’t as bad as you think; most first-time tax filers just need to learn a few tax filing basics.
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If you just started your business, filing your taxes will be one of the most troubling things to deal with. Compared to personal taxes, business taxes are more complex and require comprehensive knowledge of the tax system to avoid mistakes and benefit from possible tax breaks.
That’s why it’s better to hire an expert tax consultant who will take care of your business taxes and maximize your tax returns.
If you choose to file your business taxes yourself and end up making errors, here are some things you could do.
Stay calm
If you accidentally made a mistake, there’s no need to panic. The automated systems of the IRS often catch simple mathematical errors. They can automatically fix it and notify you of the said changes. If a math error suggests that you either overpaid or underpaid your taxes, the IRS will also notify you about that.
Amending the tax return
If you need to amend the tax returns, you’ll either need to file the Form 1040-X or the Form 1120-X, depending on your business’s structure. However, at this point, you must take the assistance of a professional tax consultant to avoid repeating any errors you initially made. Moreover, filing an amendment involves too many complex steps that are best left for the tax experts to deal with.
Be ready to pay
If your errors meant that you end up underpaying the IRS, they may penalize you with additional interests and penalties. However, sometimes they may offer you a break on the legal penalties.
Hire a tax filing service
Filing taxes require diligence and an eye for detail. One of the simplest ways to avoid mistakes on your business taxes is to hire a tax filing service. Not only will this save you from the trouble of legal penalties, it will also save you a lot of time that you can rather spend on improving your business strategies.
At Nidhi Jain CPA we offer professional personal and business tax services. Our certified public accountant in USA ensure that your taxes are accurately filed to avoid any issues with the IRS.
We also offer strategic tax solutions that ensure your business taxes are kept to a minimum while your tax returns are maximized.
Our team also has certified public accountants to help you with payroll accounting, bookkeeping, and much more.
Call us or email us now to learn more about our accounting services.
If bookkeeping takes too much of your time, you should consider hiring a professional bookkeeping service for your business.
It doesn’t matter whether your business is fairly new or well-established; you will greatly benefit by outsourcing your bookkeeping.
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