In honor of tax season almost being OVER, I have decided to make a tax blog post just for you!
When it comes to taxes, it can be hard to keep track of all the jargon and terminology. One of the most common questions asked is, "What is the difference between a tax credit and a tax deduction?"
Tax deductions are expenses that you can deduct from your taxable income, which can lower your overall tax bill. For businesses, common deductions would be office supplies, cell phone, interest, insurance, etc. For personal tax, deductions would include all itemized expenses (state tax, mortgage interest, charitable contributions) or other less common deductions like self-employed insurance, contributions to a traditional IRA or non-employer made HSA contributions. Tax credits, on the other hand, are applied directly to your tax bill and can reduce the amount of tax you owe dollar-for-dollar. For business taxes, these would include the tip credit and R&D credit. for personal returns, these would include the child tax credit, education credit, and the earned income credit. Most credits phase out above a certain dollar amount, so make sure to consider your income to determine if you are eligible for credits.
While both tax deductions and tax credits can help you save money on your taxes, tax credits are often considered the more valuable option since they offer a direct reduction in the amount you owe.
Navigating the world of taxes can be overwhelming, but as a tax professional, it's my job to help you make sense of it all. If you're unsure which deductions and credits apply to your specific situation, I'm here to provide guidance and help you maximize your savings.
At the end of the day, our goal is to help you keep more of your hard-earned money in your pocket while ensuring that you remain compliant with all applicable tax laws and regulations. So don't hesitate to reach out if you have any questions or concerns about your taxes