You have questions? We have answers! This tax season we saw the same questions asked over and over again. To help you out, we are going to answer the top four questions asked this tax season.
First: How Can I Reduce My Tax Bill?
If you’re asking this at your tax appointment it’s typically too late. Too many people only think about their taxes on April 15, but tax planning needs to happen year round because the majority of tax deductions have to happen before the year ends. You should attempt to meet with a tax professional quarterly to help manage tax liability and make estimated payments throughout the year. Will help you to save money, and reduce some of that end of the year shock. If this seems like too much, at the very least, you should talk with your accountant in late Q3 so you can make last minute adjustments before the year ends.
Second: What Is Better, A Tax Deduction or Credit?
Generally speaking, a tax credit is more valuable than a tax deduction because it directly reduces the amount of tax you owe, while a tax deduction only reduces your taxable income by the amount of the deduction. However, tax credits have limitations and restrictions based on your income, filing status, and other factors, so you always want to talk with your tax professional to see what’s best for you.
Third: I’m Married, Should I File Jointly or Separate?
In most cases, filing jointly results in a lower tax bill than filing separately, but there are some situations where filing separately may be more beneficial. When you file jointly, you and your spouse combine your income, deductions, and credits, which can result in a lower overall tax bill. In addition, some tax benefits, such as the earned income tax credit and the student loan interest deduction, are only available to couples filing jointly. However, there are some situations where it may be better to file separately. For example, if you have a high-income spouse with significant itemized deductions, filing separately may allow you to claim a larger deduction for your own expenses. Additionally, if you or your spouse has significant medical expenses or other itemized deductions that exceed the standard deduction, filing separately may allow you to claim a larger deduction. It’s important to note that filing separately can also limit your eligibility for certain tax credits and deductions, such as the child and dependent care credit, the adoption tax credit, and the tuition and fees deduction.
Ultimately, the decision to file jointly or separately should be based on a careful analysis of your individual tax situation, taking into account factors such as your income, deductions, credits, and any other tax benefits that may be available to you.
Fourth: When Should Someone File Their Taxes By Themselves Vs Hiring A Professional?
If you have a simple tax situation with only one source of income and no significant deductions or credits, you most likely can file your taxes by yourself using tax software or paper forms. If your tax situation is more complex – like if you’re self-employed, own a business, or have significant investments or rental properties – you’ll probably have more complicated tax obligations that require specialized knowledge and expertise. Similarly, if you’ve experienced a major life event such as a divorce, the birth of a child, or the purchase of a home, a tax professional can help you navigate the tax implications of these changes. A tax professional can also help you identify all the deductions and credits you’re eligible for, potentially saving you money on your taxes. They can also represent you in the event of an audit or other tax issue, providing valuable support and advice. Ultimately, the decision to file your taxes by yourself or hire a professional should be based on an assessment of your individual tax situation, taking into account factors such as your income, deductions, credits, and any other tax obligations you may have.
If you’re unsure whether you should hire a professional, it’s always a good idea to consult with a tax professional or use tax software to determine the best course of action for your situation.
If you have more questions, contact Paragon today!