Tax Planning 101
Tax credits and deductions can mean more money in a taxpayer’s wallet. Some people only think about this when they file their tax return. However, thinking about it now will help make filing easier next year.
These tips focus on steps taxpayers can take now to help them down the road.
Taxpayers should be prepared to claim tax credits and deductions. So, here are a few facts about credits and deductions:
- Taxable income is what is left over after someone subtracts any eligible deductions from their adjusted gross income. This includes the standard deduction. In fact, most individual taxpayers take the standard deduction. On the other hand, some taxpayers may choose to itemize their deductions because it could lower their AGI even more.
- The Tax Cuts and Jobs Act made changes to itemized deductions. Many individuals who formerly itemized may find it more beneficial to take the standard deduction.
- If a taxpayer’s itemized deductions are larger than their standard deduction, they should itemize.
- Taxpayers can subtract tax credits from the total amount of tax they owe. To claim a credit, taxpayers should keep records that show their eligibility for it.
- Here are a few examples of taxpayers who can benefit from certain credits:
- Parents may qualify for credits like the child tax credit and child and dependent care credit.
- Families with students may qualify for the American opportunity credit or lifetime learning credit.
- Low to moderate income taxpayers may qualify for the earned income tax credit.