What are the Most Common Tax Questions CPA Get Asked
If you’re looking to minimize your federal and state taxes, you might be wondering what kind of deductions you can take. You might be confused as to whether you should itemize or claim the standard deduction, and which is better, a tax credit or a tax deduction?
To find out how to get the most tax savings, read this article! We’ll discuss the answers to your most common tax questions.
How can I reduce my federal and state tax bill?
If you have been asked to pay more in taxes this year, you may want to know how to reduce your federal and state tax bill. Fortunately, there are ways to do so without evading taxes. While it may seem like a good idea to avoid paying tax altogether, it’s illegal and could result in a fine. In fact, avoiding taxes is as bad as cheating. Here are some of the most effective ways to cut your tax bill:
What kind of deductions do I qualify for?
Tax deductions allow you to lower your tax bill by allowing the government to deduct certain expenses for the common good. They may encourage you to buy a home, contribute to a charity, or save money. There are many ways to claim tax deductions and credits. This article will outline some of them and how they can help you save money. The table below shows examples of the types of tax breaks available for you to take.
You can claim both the standard and above-the-line deductions, but claiming the standard deduction is usually more beneficial. You can claim the deduction on page two of Schedule 1 or itemize your deductions. For example, if you have a child, you may be able to deduct up to three times as much as you spent on child care. Those expenses should be deducted from your income, as well as any other qualifying expenses you may have.
Should I itemize or claim the standard deduction?
Whether to itemize your deductions or claim the standard deduction is a personal choice. The IRS doesn’t want to tell you what’s right for you. You’ll end up paying more taxes if you choose the wrong option. Whether to itemize your deductions depends on your personal situation and the amount of expenses you have. When deciding to itemize, aim for a larger deduction if your total qualified expenses exceed the standard deduction.
When it comes to itemizing deductions, there are many rules. Medical expenses can only total 7.5% of your adjusted gross income, and you need to spend a lot of time completing your tax return. Also, itemizing your deductions requires you to fill out a large enchilada of forms, including Schedule A and supporting schedules. You can get more help determining which option will save you money in the long run by working with a tax professional or using a tax preparation software to find out what deductions are available to you.
Which is better: a tax credit or a tax deduction?
Tax credits and deductions are two different ways to reduce your taxable income. Tax credits reduce your taxable income dollar for dollar, while a tax deduction lowers your final tax bill within your marginal tax bracket. For example, if you bought a sweater for $100, you could claim a tax credit worth $5 off that purchase to reduce your tax liability to $25. This is better than a tax deduction, which may reduce your refund by just a few dollars.
A tax credit is money you can apply to your tax debt, while a tax deduction reduces your actual tax bill. While tax credits are refundable, tax deductions can only reduce your federal tax liability. However, if you have enough credits and deductions, you may find yourself owing no federal taxes at all. In these cases, you should speak with a tax advisor to make sure you’re getting the best use of these deductions.
Can I deduct personal medical expenses?
You can deduct personal medical expenses on your tax return, as long as they were used to treat a physical or mental defect. Expenses for surgery, treatments, and prescription drugs cannot be deducted if they are used to improve general health. For 2018 tax year, you can deduct up to 7.5% of the cost of your medical expenses. Transportation costs and pre-tax salary contributions are not deductible.
Medical and dental expenses paid out of pocket are deductible if they are not covered by an employer’s insurance plan. Medical insurance premiums paid through an employer are not deductible because they must be included in your W-2 form as income. Certain drugs and insulin cannot be deducted, either. If you’re unsure whether your medical expenses are deductible, consider using an online tax preparation service. Credit Karma Tax does not charge for federal or single-state filing.