Tax Refunds & Advice

Many tax filers are confused when it comes to tax credits and tax deductions. In other words, they think that they are the same thing. And while credits and deductions are similar in some ways, they are not identical. As a taxpayer, you need to know the details of each one and how they can work to your advantage when filing your final return. If you are not sure of how to use tax credits and deductions, you will want to seek the help of a professional.

Tax credits are used to reduce your liability dollar for dollar. In other words, each dollar from a tax credit will lower your tax liability that same amount. As you can imagine, credits are a great way to reduce your taxes and in many cases eliminate your liability altogether. Some of the most commonly used tax credits include: child tax credit, earned income credit, retirement savings credit, adoption credit, and the foreign tax credit among others.

On the other side of things, tax deductions are used to reduce the income on which you pay tax. These deductions are claimed on page one of your 1040. Some of the most popular tax deductions include: IRA deduction, college tuition, mortgage interest, student loan interest, charitable contributions, moving expenses, and business expenses in addition to many others.

Now that you have a better understanding of tax credits and tax deductions, you should be able to file your return with more success and efficiency in the years to come. Remember, both credits and deductions can go a long way in reducing your tax liability. In the end, this allows you to save money. 

John McCain, the Republican presidential candidate, has outlined his plan on cutting taxes while also touching on how this will benefit both individuals and small businesses.

A story on CNNmoney.com details the moves that McCain plans on making if he wins the White House in November:

McCain promised to “sign into law a reform to permit the first-year expensing of new equipment and technology.” He also vowed to keep capital gains taxes low “so that businesses like yours can expand and create jobs instead of just sending more of your earnings to the government.”

McCain also has big plans for reducing the corporate tax rate. Right now, this rate is the second highest in the world. The senator wants this rate to instead be on par with prominent trading partners, which he feels will allow the United States to keep more “businesses and jobs in the country”

While speaking of his proposed plan, McCain also took the time to lash out against Democratic candidate Barack Obama. “Will we enact the single largest tax increase since the Second World War as my opponent proposes, or will we keep taxes low for families and employers,” he said.

As the days go by and the November election closes in, both McCain and Obama will be trading barbs over future taxes, health insurance, the war in Iraq, and many other sticking points. For now, McCain seems to be appealing to a large group of voters as far as his proposed tax plans are concerned.

There are many websites that offer free tax calculators that you can use no matter who you are and what tax situation you are facing. With that in mind, you only want to use and rely on these if you know that they are accurate. After all, relying on inaccurate information is not going to get you very far when it comes to filing your taxes.

One of the most commonly used tax calculators is one for determining withholding. With this calculator, you can ensure that you do not withhold too much or not enough from your paycheck. As you can imagine, this is an important calculator in order to ensure that you do not owe the IRS money after your final return or that you do not lend them too much during the year.

You will also come across tax calculators that are meant to calculate the refund that you will receive or the amount that you will owe the IRS. In most cases, this calculator will work to your advantage after the year has ended. At this point, you may want to see where you stand before you begin to work on filing your final return.

There is nothing wrong with using a tax calculator. Just remember, you want it to be free, accurate, and simple to understand. If you find a tax calculator that offers all three of these benefits, feel free to use it to your advantage throughout the year. No, you do not want to rely solely on these calculators, but there are times when they will come in handy and allow you to take some stress off of your financial life.