Dealing with taxes is one of the most stressful jobs. With so many confusing terminologies – and not to mention, the complex law policies on taxes, it can be intimidating for any regular person. While hiring a legal expert or a mortgage broker in Provo, Utah may help you handle your tax situation; it’s best to familiarize some of the policies about taxes.
Here are a few pointers that may help you understand more about taxes.
Understanding Tax Deductions
As the name implies, tax deductions are those expenses that you can actually use in order to lower your tax due. The first thing that you need to keep in mind when it comes to tax deductions is that it can differ from one state to the next. Regardless though, the deduction is not made on the tax due itself but on the gross income, which, in effect, allows you to have a lower base for computing the tax.
Tax deductions can either come as a standard tax deduction or as an itemized deduction. In the case of standard tax deductions, the amount to be deducted is already set depending on the current tax laws as well as the filing characteristics of the taxpayer. This is a good option for those who do not want to do computations and risk filing the wrong amount as a deductible.
Some of the common items included in this category would be property taxes, mortgage interests, and healthcare costs. Your mortgage broker should be able to help you determine how much you can declare as a tax deduction.
Itemized deductions, on the other hand, would mean having to go through all of your expenses and computing how much you can declare as a deduction. This can be quite tricky as there are certain thresholds for each kind of expense that you might have, and those thresholds tend to differ from one place to the next. For example, Provo Utah taxes Social Security, which is not the case if you are residing in Oklahoma. For most people, the best way to handle itemized deduction would be to get the services of an accountant.
How Tax Credits Work
If tax deductions are generally taken from the gross income, tax credits are applied against the actual tax due. Like tax deductions, however, the amount and the categories can differ from one state to the next. You can think of tax credits as incentives being provided by the government for doing something that is beneficial to the country. This can include using green energy, bringing in a business that can help employ thousands of locals, or having dependents. Some tax credits can also come in the form of excess taxes paid from the previous year as well as incentives provided for making the tax payment early. Now, tax credits can also be grouped into two – fully refundable and partially refundable.
A fully refundable tax credit is one that allows you to get a refund should the applied tax credit exceed the amount that needs to be paid. A partially refundable tax credit is one that allows you to claim for a refund only if you meet certain guidelines.
These are some of the few basic things you should know about taxes. Again, make sure to consult a professional when it comes to these matters.