Tax Refund Guide: What You Need to Know Before You File
Defining Tax Deductions
Tax deductions lower your taxable income by allowing you to subtract certain expenses. Things like student loan interest, mortgage interest, and some business costs qualify. Using deductions can greatly reduce what you owe in taxes.
Understanding Tax Credits
Tax credits directly cut down the tax you owe, not just your taxable income. The Earned Income Tax Credit is a good example, helping low- to moderate-income families get bigger refunds. This shows how credits can offer a quicker financial boost than deductions.
Types of Tax Deductions
Different types of tax deductions can help with your taxes. You can either take the standard deduction or itemize your deductions. The choice you make can affect your refund and help you get the most deductions.
Standard vs. Itemized Deductions
The standard deduction for 2023 is $13,850 for single people and $27,700 for married couples filing together. Choosing this deduction makes filing easier. Itemizing lets you deduct specific expenses, which might give you more tax benefits if your finances are complex. Knowing the differences between these options helps you make the best choice for your taxes.
Common Deductible Expenses
Many expenses can be deducted, which can help you save more on taxes. These include mortgage interest, medical bills over 7.5% of your income, and donations to charities. Keeping track of these expenses is key to getting the most tax benefits. Deciding whether to itemize or take the standard deduction depends on these deductions.
Exploring Tax Credits
Understanding tax credits is key for those wanting to improve their finances. These credits help lower your tax bill and can boost your refund. They come in two main types: refundable and nonrefundable credits.
Refundable vs. Nonrefundable Credits
Refundable credits can give you a refund even if you don’t owe taxes. If your refundable credit is more than what you owe, you get the extra cashback. Nonrefundable credits, however, can only reduce your tax to zero. They don’t give you cash refunds after that. Knowing the difference is important to make the most of your credits.
