Tax Benefits

Tax benefits seem like an oxymoron because how can anything with the word 'tax' associated with it provide any benefit. Not all tax is terrible, and in fact, there are indeed benefits.  

When talking tax, benefits come in the form of deductions, credits, and exclusions, and they can do wonders in reducing your tax bill.  There may be some specific requirements you must meet to reap the benefits of these tax-reducing allowances.   

The tax benefit that we hear the most about is the tax deduction.  Charitable gifts, tuition, and medical fees are just a few of the tax-deductible items.  These deductions reduce your taxable income by lowering your net earnings so that it can be very beneficial.

Another tax benefit that many aren't as familiar with is the exclusion.  The great thing about the exclusion is that its income that's never reported on your tax return.  This is considered tax-free income.  If you've ever earned income while outside the U.S, you know this benefit all too well.  This tax law allows you to exclude up to $105,900 for the tax year 2019, as long as you're in a foreign country for most of the tax year.

A tax credit can provide significant savings even more so than a deductible. It provides a dollar-for-dollar reduction in the amount of income tax you owe instead of lowing your income as the deductible does.  There is a list of expenses that are subject to tax credits, such as alarm systems, college tuition, or solar energy panels.

The final credit you hope you're not familiar with is the capital loss credit.  Losing money is uncomfortable and unpleasant, but not all is lost because the loss may provide you with a tax benefit.  Capital loss, that which you'd experience when you sell stocks for less than what you originally paid for them, are subject to a credit.  You must calculate the loss with your capital gains.  The Schedule D attachment to your income tax return can provide further detail on this credit.

Tax credits can be relatively easy to identify except for perhaps the capital loss credit.  Our tax accounts at Lewis CPA are always on hand to answer any questions you may have around what credits you qualify for and all tax questions in general.