There is most likely no one who wishes to pay more for taxes than they have to. Tax liability reductions are not always simple, but it is nice to know which tax credits or deductions you are eligible for. Calculating these reductions correctly can mean the difference between owing more, or receiving a large refund. Finding out if you qualify, or how you can qualify, for a Denver Tax Liability Reduction is definitely a good use of your time.
Tax Deductions, Exemptions, and Credits
One of the most confusing aspects of taxes is the differences between deductions, exemptions, and credits. These are all different and can allow you to save in different ways. To fully understand who qualifies for tax liability reductions, you must first understand the difference between these three.
Tax deductions allow you to deduct from your income. This is done before you calculate the amount of tax you owe, and it lowers your taxable income. Typically, this can put you into a lower tax bracket, which will allow you to pay a lower overall percentage in taxes.
Tax exemptions have been discontinued until 2025. This occurred due to the Tax Cuts and Jobs Acts of 2017. Due to this, deductions have been increased. It is supposed to compensate for the loss of personal exemptions.
Tax credits are actual dollar reductions on your tax payment. You can subtract these credits from the amount of tax you are supposed to pay.
Tax Deductions
If you are filing personal income tax, you will have two options for deductions, standard deductions or itemized deductions. You cannot choose both of these options, so you will have to choose one. This choice is important to decide what will benefit you the most.
Standard Deductions
Standard deductions are the amount that you can subtract from your gross income. The remaining number is your adjusted gross income (AGI). This is how you determine what you will need to pay for your taxes, as it determines your tax bracket.
Itemized Deductions
There are many options for itemized deductions. It is definitely helpful to consult a tax professional when performing itemized deductions to avoid missing anything.
Common itemized deductions include:
- Education expenses for work: If you work in an industry where you are required to pay for continuing education courses, then you can deduct these expenses from your taxes. This can include travel costs, tuition, books, and even research. For this to count, you specifically have to use these courses to improve your job skills.
- Income and property taxes: Up to $10,000 can be claimed as a tax liability reduction for state and local income, property, and sales taxes.
- Charitable donations: Deduct the fair market value of items you donate to charity. Make sure to keep a record of every contribution you make. You will also need to record the amount, the date, and make sure it holds a charitable tax ID.
- Medical or dental expenses: If your family pays for medical or dental bills that are more than 7.5% of your income then you will be able to deduct this amount from tax liability.
- Mortgage points: Your prepaid interest on your mortgage is called points. These can be deducted when you itemize deductions on your taxes. This can also include property taxes and mortgage insurance.
- Disaster relief: If you were a victim of a natural disaster then you might qualify for a reduction.
Tax liability reductions do not need to be difficult. Simply take a look at what you might qualify for, and work with a tax pro to figure out how to lower your tax commitment.