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Basic Tax Planning with 5 Tax Strategies & Tax Filing Approaches

Posted by admin on October 26, 2023
Last modified: October 30, 2023

Fundamental 5 Tax Strategies & Tax Filing Concepts to an effective Tax Planning and Filing, such as being aware of your taxable bracket, understanding the basics of taxation, maintaining necessary documents, etc., are all essential for effective planning.

Maximizing the potential for financial advantage while obeying laws is the objective of effective taxation planning. By analyzing and arranging a person’s fiscal position, it is possible to minimize liabilities and maximize deductions efficiently.

Filing taxes can be a daunting task, yet getting familiar with the relevant rules has its rewards. Understanding some of the major principles involved in taxation planning and strategy may help you lessen your financial burden once it’s time to file. Here are some points to consider before making any significant monetary decisions.

tax planning

Tax Planning 1. Tax Deductions VS. Tax Credits

When filing your taxes, you may be delighted to learn about the deduction and credit options available. Both can reduce the money owed in taxes, though they function differently. By understanding the distinction between them, it is possible to develop a great plan to lessen your overall burden.

When filing taxes, taxpayers have the opportunity to deduct certain expenditures. These deductions are subtracted from your total taxable income, reducing the amount you will pay in taxes.

In comparison to deductions, which are subtracted from your taxable income, a much more valuable benefit is a reduction in the actual amount of taxes you owe.

Tax Planning 2. Stay Up To Date on Any New Tax Deductions and Tax Credits

It is critical to remain aware of the numerous tax deductions and credits that are available. In total, there are several hundred options, so it’s essential to make sure you qualify for the ones you plan on claiming.

Tax Planning 3. Know Which Tax Bracket you Fall Into

It’s only possible to make plans for the future by understanding your current tax situation. As such, the first advice is to determine which federal tax bracket applies to your case.

There are good reasons why. Once your total income is calculated, tax deductions are subtracted to determine your taxable income. Consequently, the amount of your salary or overall earnings may not always equal your taxable income. Instead of simply calculating taxes by multiplying your tax bracket by your taxable income, the government takes a different approach. They split your taxable income into sections and apply the applicable rate to each section.

In contrast to a flat tax system, taxpayers in America face a progressive taxation system. This means those who make more pay taxes at higher rates, while those who earn less are subject to lower tax rates.
For the upcoming 2023 tax year in April, 2024, income is split up into seven distinct brackets. The rates range from 10% to 37% in increments of two and four percentage points.

Tax Planning 4. Standard Tax Deduction VS. Itemizing Tax Deduction

Standard Deduction

Regarding tax planning, one of the most important decisions you must make is whether to itemize your deductions or simply take the standard deduction. This choice can have huge implications for how much you owe in taxes.

The standard deduction is a way to make filing taxes easier and faster. This no-questions-asked tax break is a flat amount that many taxpayers take instead of itemizing deductions to simplify the process. In essence, it is a fast and straightforward option for reducing one’s taxable income.
Each year, the amount of the standard deduction is set by the United States legislative branch, and it is usually adjusted to account for inflation. Whether you are filing singly or jointly, your eligibility for the standard deduction varies; you can see in which bracket you fall concerning this particular tax benefit through the table below.

Itemize

Do you know why itemizing your taxes is important? By itemizing, rather than opting for the standard deduction, you can maximize your deductions on a tax return.

When tax planning, individuals should monitor their deductions throughout the year in order to determine whether itemizing is the best option. Usually, this choice hinges on whether the sum of their itemized deductions exceeds the standard deduction. Although itemizing can save money, it requires more effort and documentation than standard deductions. You must prove that you are eligible for any deductions taken when itemizing your taxes.

IRS Schedule A

When filing your taxes, Schedule A is the form used to list all itemized deductions. For those who own a home, there are advantages to itemizing that could result in more savings than the standard deduction would offer. Homeowners have access to tax deductions for mortgage interest and property taxes, which can quickly amount to more than what the standard deduction can provide.

For those who take the standard deduction on their federal tax returns, itemizing deductions for your state return may be worth considering. Fortunately, PriorTax provides Dedicated Tax Professionals for free with the ability to identify which tax deductions can be included and how their total amount compares to the standard deduction.

Tax Planning 5. Maintaining Prior Year Tax Records

When it comes to taxes, having records on hand is essential. Your tax return and the accompanying documentation should be kept secure in case of an audit. This is why it’s important to understand which documents are necessary for your taxation needs.

It is advisable to hang onto your records for at least three years due to the IRS’s time limit to carry out an audit on your return. Additionally, should you submit a claim for a tax credit or refund after filing your original return, those documents should also be kept for the same amount of time.

In certain situations, you may be required to maintain documents for an extended time, from six years to indefinitely. This is due to the Internal Revenue Service (IRS) having a longer limit on their auditing timeline in these cases. For example, the agency has up to six years when there was more than 25% income underreporting or seven years for writing off losses from worthless security. Furthermore, the IRS can audit indefinitely should they discover tax fraud or non-filing of any returns.

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Category: Tax and Life Changes, Tax Deadlines, Tax Deductions and Credits, Tax Tips and Tricks
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American Opportunity Tax Credit

Posted by admin on June 15, 2023
Last modified: June 16, 2023

The American Opportunity Tax Credit: a Financial Break for Students.

The American opportunity tax credit provides an invaluable opportunity to lessen the burden of college attendance. Those students (or their parents)

Unlike other education-related tax benefits, which merely reduce income subject to taxation, taking advantage of American Opportunity Tax Credit can offer taxpayers significant savings since it reduces taxes owed on a dollar-for-dollar basis. To be able to take full advantage of such an opportunity, however, one must meet certain eligibility requirements.

American Opportunity Tax Credit

American Opportunity Tax Credit Requirements for Eligibility

In order to qualify for the American Opportunity tax credit, a student must meet certain conditions. Specifically, they must:

  • For the individual who hasn’t gone through all four college years, post-secondary education is incomplete.
  • A drug conviction that is either federal or state-level will preclude a student from qualifying for the tax credit. In other words, someone with such a criminal record would not be eligible.
  • At least half of a student’s hours should be dedicated to a program that leads to an educational degree or credential.
  • Signing up for at least one academic period during the given tax year is required.

American Opportunity Tax Credit Qualifying Expenses

In order to take advantage of the education credit, you must pay tuition and fees to an approved educational institution. Qualifying expenses must meet certain requirements for eligibility.

Other post-secondary educational institutions may be qualified to participate in the U.S. Department of Education financial aid program besides universities and colleges. To be considered an “Eligible Educational Institution,” these schools must meet certain criteria outlined by the U.S. government.

Under certain circumstances, it is possible to receive Uncle Sam’s assistance regarding an American Opportunity tax credit. In order to qualify for the American Opportunity credit, any money spent must be associated with a program of study. This could include:

  • Books
  • School Supplies
  • Study Equipment

American Opportunity Tax Credit cannot be applied to expenses that include:

  • Room Rent
  • Transportation Costs
  • Medical insurance.

Borrowed funds such as student loans or credit cards should be taken into consideration when calculating your qualified expenses with regard to taxation. However, it is important to remember that any amount you receive from these sources should not be included.

  • Tax-Free Scholarships or Fellowships,
  • Federal Pell Grants,
  • Tuition Grants from an Employer,
  • Refunds from the School
  • etc.

Calculating the Tax Credit

Estimating the American Opportunity Tax Credit is essential. Only a single AOTC can be awarded to one eligible student each tax year.

When you have two dependents qualifying as a student, you may take advantage of separate educational tax benefits for each. Even though the American Opportunity Credit is an option for one dependant, it can still be chosen for both; different credits can be utilized. However, it is important to note that only a single tax break can be used per child annually.

American Opportunity Tax Credit Amount is Equal to

The first $2,000 of qualified expenses is completely covered, a guarantee of one hundred percent.
For all expenses exceeding $2,000, a quarter of the total must be paid.
Each student is entitled to a credit of up to $2,500 annually.

Claiming the Tax Credit

The credit for students can be taken by the student themselves or another taxpayer who has claimed the student as a dependent. All that is needed to take advantage of this opportunity is to fill out the necessary sections on IRS Form 8863 and attach it to a personal income tax return.

For the tax year 2022, the tax credit begins to phase out for:

As of the tax year 2022, the credit begins to lessen once taxpayers reach certain income levels. Single tax filers with an adjusted gross income between $80,000 and $90,000 will see a decrease in their credit, while joint filers with an adjusted gross income between $160,000 and $180,000 will also experience a reduction. Those with incomes surpassing these thresholds cannot claim the credit at all.

Tax Extension in 2022 can be done for

  • American Opportunity Tax Credit
  • Student Loan Interest Deduction
  • Charitable Donations from IRAs
  • Educator Expense Tax Deduction
  • Health Insurance Premium Tax Credit
  • Residential Energy Efficiency Property Tax Credit

Why not make sure your taxes are done right by hiring a Free Dedicated Tax Professional from PriorTax? With a Dedicated Tax Professional, you can be assured that every process step is taken care of for you. Alternatively, you can get the help and advice of an experienced professional with a Free Dedicated Tax Professional. Even when taking on your filing with Prior Tax, you have the assurance that your refund will be maximized.

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Category: Tax Deductions and Credits, Tax Tips and Tricks, Tax Year 2022, Taxes for Prior Years
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Child Tax Credit 2022

Posted by admin on November 7, 2022
Last modified: February 13, 2023

Individuals and businesses must pay different taxes, but credits can help offset some burdens. For example, Tax Credit are often given for activities that benefit the economy or further important goals. In most cases, child tax credit 2022 cover expenses paid during the year and have certain requirements that must be met before claiming them. By taking advantage of available tax credits, taxpayers can save money and reduce their overall liability.

Child Tax Credit 2022

The Child Tax Credit in 2022 is a powerful tax tool that can help you save on your taxes. The Child Tax Credit 2022 is now worth up to $2,000 per qualifying child and can be used to reduce the amount of tax you owe. A tax credit is a bit different from a tax deduction. Tax credit effectively reduces your total taxable income by the dollar for each dollar of deduction. The 2022 Child Tax Credit if qualified, is a great way to preserve money on your tax, so take advantage of it!

You may get a refund on your Child Tax Credit by using the Additional Child Tax Credit (ACTC). However, your adjusted gross income needs to stay below a specific amount based on your tax filing status, not to limit your Child Tax Credit. Remember, you can claim these tax credits when filing your taxes!

Contact our PriorTax Tax Service Professionals to guide you through this process to maximize your tax refund in 2022!

child tax credit 2022

Qualifying for the Child Tax Credit in 2022

For your dependent or children to be eligible for the Child Tax Credit in 2022, you must provide their name(s) and Social Security Number(s) on your tax return. In addition, you and any joint filers must provide your taxpayer-identification numbers or TIN.

To qualify as a dependent for tax purposes, your child must meet the following criteria:

You may claim your son, daughter, stepchild, foster child that are eligible, brother, sister, half-brother, half-sister, or their descendant as a dependent on your tax return as long as they meet the following criteria:

– They lived with you greater than half of the tax year while some exceptions exist.

– They must not have provided them with more than 50% of their financial needs to support them during the tax year

– To be eligible, they must not have filed a joint tax return for the year

– They must have an official Social Security Number.

Determining the Child Tax Credit 2022 amount

To calculate the amount of the Child Tax Credit in 2022, you will need to gather a few key pieces of information. First, you will need to determine the number of children that qualify for the child tax credit. Then, multiply that number by $2,000 to calculate the total potential child tax credit once you have that number.

However, keep in mind that the potential Child Tax Credit amount may be reduced depending on your adjusted gross income. For those who are married and filing jointly, the maximum adjusted gross income is $400,000. For all other tax filing statuses, the maximum is $200,000.

Additionally, any remaining 2022 Child Tax Credit amount will be further reduced after considering federal income tax. Specifically, if your federal income tax somehow is less than the anticipated total Child Tax Credit amount, the tax credit is limited to the amount of your total tax obligation. However, those who owe more taxes than their potential credit can claim the full credit by filling out Tax Form 8812.

Determining the Additional Refundable Child Tax Credit amount

The Child Tax Credit is a great way to help offset the costs of raising a family. However, sometimes families need more tax liability to take advantage of the full credit. In these cases, the Additional Child Tax Credit can greatly help.

This tax credit is refundable up to $1,400 per qualifying child for the unused amount of your Child Tax Credit. The tax credit is calculated by taking 15% of your total earned income above $2,500. Even though the traditional earned income requirements must usually be met to qualify for a refundable credit, there are some cases where filers with three or more qualifying children may still be able to receive the tax credit. To calculate the credit using this method, net Social Security and Medicare taxes are subtracted from the earned income credit claimed. Claiming the child tax credit in 22′ using this method is only possible when the number from this calculation is greater than the standard calculation that uses earned income. When it’s not, filers have to use the number that results from taking 15% of their earned income above $2,500.

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Category: Tax and Life Changes, Tax Deductions and Credits, Tax Tips and Tricks, Taxes for Prior Years
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