With the tax deadline set for April 15th approaching, it's crucial to understand the terms that can reduce your taxable income or lower the taxes owed.
Andrew Gordon, Partner at Gordon Law, joins Wealth host Brad Smith to discuss key tax terms that can help reduce the amount owed or lower taxable income.
"Tax deductions reduce your ordinary income. And so for instance, if you're an individual you can choose between the standard deduction or itemize your deductions," Gordon explains. "As an individual for someone filing individually that's $14,600, or filing joint that's $29,200. But if you itemize, it depends on your actual expenses that you incurred during the year."
Common deductions include charitable donations, medical expenses, mortgage interest, and state or local taxes — especially for residents of high-tax states. Tax credits, however, directly reduce the taxes owed.
"While deductions reduce your income taxes, tax credits reduce your actual taxes. They are a dollar-for-dollar deduction against the taxes paid, not your income," Gordon says.
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Examples of tax credits include those for education, children, electric vehicles, and energy-efficient home improvements. Keeping track of receipts and consulting an accountant can help maximize these benefits.
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This post was written by Josh Lynch