Certified Practicing Accountants (CPAs) answer a slew of questions about taxes every year. As industry experts, they are the obvious ones to turn to when you have taxation questions. However, it can help to do your own research so you’re prepared ahead of time. To help you do just that, here are the answers to some of the most common taxation questions people ask every year:
- What Can I Do to Lower My Tax Bill?
There are several ways you can lower your tax obligation. Tax credits and deductions both help reduce the amount of tax you owe the government, and the best tax accountants can help you figure out the ones to which you are entitled.
For example, if you have dependents, you may qualify for the Child Tax Credit. Alternatively, if you earn income from an employer, you can contribute to a pre-tax retirement account or a health savings account, both of which save you money come tax time.
- What Deductions Do I Qualify For?
There is no one-size-fits-all answer to this question as everyone’s tax situation is different. However, most people qualify for either the standard deduction or the itemized deduction – both of which reduce your tax obligation.
With that said, self-employed filers may have more opportunities to save via itemized deductions, but employees can also take advantage of many tax reductions including contributions to IRAs, 401ks, HSAs, and more. If you have student loans or own a home, you can deduct the interest you pay on these loans as well.
- Which is Better: Tax Deductions or Tax Credits?
In short, tax credits are better because they reduce your tax obligation dollar for dollar. Tax deductions lower the amount of taxable income you have. So, if you have a total tax bill of $10,000 with a tax credit of $1,000, the amount of tax you owe would be $9,000.
If your income is $50,000 for the year and you qualify for a $1,000 tax deduction, it would reduce your taxable income to $49,000. Depending on the tax bracket you fall into, this would mean a savings of anywhere from $0-$300 on your tax obligation.
- Are Medical Expenses Deductible?
Medical expenses are deductible, but with limitations. The government allows you to deduct any medical expenses you incur during the year that you aren’t reimbursed for and that exceed 7.5% of your Adjusted Gross Income.
Non-reimbursed medical expenses you may deduct include:
- Preventive care
- Dental and vision expenses
- Medical treatments
- Travel expenses to receive medical care
Note: You must itemize deductions to claim medical expense deductions on your taxes.
- Should I Take the Standard Deduction or Itemize Deductions?
Which type of deduction you choose depends on which one saves you the most money. The standard deduction, which is $12,550 for single taxpayers and $25,100 for married taxpayers filing jointly in 2021, often makes it difficult to justify itemizing your deductions. With that said, it’s always a good idea to calculate your itemized deductions and compare that number to the standard deduction to determine which route will reduce your tax obligation the most.Doing your taxes can be a confusing experience. As such, it’s important to stay up to date on the current tax laws and understand what deductions and credits you qualify for to save the most money. If it’s all a bit too much, don’t hesitate to find a great tax accountant to help you save as much money as possible this tax season.