Understanding Tax Credits and Deductions

Don’t leave any of your income tax credits and deductions on the table! Taxpayers throughout the country, may unknowingly qualify for tax credits. And fail to claim them because of inadequate tax preparation. So we encourage to to seek the help of professionals. You know, you can be “a penny wise, and a pound foolish.”

There is a difference between credits and deduction. An taxpayers need to be made aware of this. You see, just because you don’t qualify for itemized deductions, it doesn’t mean you don’t qualify for some credits. We want to remind taxpayers that credits are not the same as deductions. And tax deductions and tax credits can both reduce an individual’s income tax liability, but they do it in different ways.

Tax deductions reduce taxable income. But deductions cannot reduce taxable income below zero. Their value is limited to the filer’s tax liability before applying the deduction. And some taxpayers may or may not qualify for the deductions, depending upon their circumstances.

Tax credits directly reduce a person’s tax liability. And hence they have the same value for all taxpayers with tax liability at least equal to the credit. In addition, some credits are refundable. And they are not limited by the taxpayer’s tax liability. And tax deductions, as a general rule, make the most sense for items that represent reductions in ability to pay tax. For example, casualty losses. But credits are more appropriate for subsidies provided through the tax system.

American Opportunity – Are you a student or do you support a student? If so, and according to the IRS, you may be eligible for this credit. Students in their first four years of higher education may qualify for as much as $2,500. Even those who owe no tax may get up to $1,000 of the credit refunded per eligible student. But you must file form 8863 Education Credits to claim this credit.

Health Coverage – Did you receive Trade Adjustment Assistance, Reemployment Trade Adjustment Assistance? Or maybe you received Alternative Trade Adjustment Assistance or pension benefit payments from the Pension Benefit Guaranty Corporation. If so, you may qualify for the Health Coverage Tax Credit. The HCTC helps make health insurance more affordable for you and your family. This credit pays 72.5 percent of qualified health insurance premiums.

You can rely on Business & Financial Solutions for efficient tax preparation. And we can help you avoid leaving other credits and deductions behind. So contact Business & Financial Solutions. We can help with all your tax needs, including back taxes that have gone unfiled for years. And we can also help if you have back taxes as a result of poor tax preparation. We can amend returns that back as much as three years.