to pay taxes on income is the civic duty of all Americans, with the money to help pay for national defense, highways, police, schools and services, among other things.
While we're happy to pay our fair share, no one wants to pay too much income tax. That's where the tax deductions and credits come into play
U.S. Congress writes the tax code -. Every 4 million words of it -. To enable individuals and businesses to claim certain deductions and credits to reduce their tax burden
Many of these deductions and credits are designed to help low-income households, working parents, owners and people paying for college
There are dozens of deductions and credits available .; the trick is to determine if you qualify.
The first step to maximize deductions and tax credits is to understand the difference between them.
tax deduction
a tax deduction is an allowable expense which lowers your taxable income.
If you give money or property to charity, for example, you can deduct the fair market value of those donations from your taxable income
Popular tax deductions include :.
- Home mortgage interest
- state, local and property taxes paid
- medical expenses out-of-pocket
- student loan interest
- moving expenses related to employment
Learn about the difference between the standard deduction and itemized deductions.
TaxACT calculates both the standard deduction and deductions detailed and tells you what is most advantageous.
tax credit
a tax credit provides a fixed amount of dollars for eligible taxpayers and directly lowers the amount of tax you pay.
the child tax credit, for example, pays $ 1,000 for each eligible child in the household. . If you owe the IRS $ 3,000, but you qualify for $ 2,000 in tax credits, then you only have to pay the IRS $ 1000
Popular tax credits include:
- tax credit on earned income (EITC) for low-income working families
- child and dependent care credit to pay for working parents the cost of child care
- American Opportunity credit and lifetime learning credit of to help cover the cost of college
- owner credits for energy improvements like solar panels and wind turbines
It is a good idea to learn about all the deductions and credits available to you.
learn more about the tax credits and deductions specifically designed for parents, homeowners, low-income workers, small businesses and families pay for college on the Blog TaxACT or visit IRS.gov.
If you have experienced a major life change such as having a baby, buying a home or moving to a new job, TaxACT Life Events will guide you through the tax consequences of them.
once you have a better idea of all the deductions and tax credits available, you will know what records and receipts to maintain during the tax year
For example:.
- If you want to qualify for a higher education credit, for example, keep track of your school records and receipts for the books.
- If you have any vehicle expenses for your business, keep a mileage log.
- If you pay for visits or medications out of pocket doctor, keep receipts and detailed explanations of the benefits.
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