As a business owner or an individual taxpayer in Pennsylvania, paying taxes can be stressful. It is necessary to save as much as possible in a legal manner through numerous tax deductions and saving opportunities available, and to do that, you need a CPA in Scranton, Pennsylvania, to maximize and also have a better understanding of tax deductions and savings. Here, we are going to tell you some basics that you need to know.
Tax Deductions
Tax deductions basically minimize your taxable income, which reduces the total amount of tax owed. Tax deductions can be categorized as:
- Above-the-line deductions
Above-the-line deductions are ready to be available for all taxpayers, irrespective of whether you opt for the standard deduction or itemize your deductions. Some examples are HSAs (Health Saving Accounts), contributions to retirement accounts, and self-employed health insurance premiums.
- Itemized deductions
Itemized deductions, on the other hand, allow you as a taxpayer to deduct some specific expenses from your taxable income, such as state and local taxes, medical expenses that exceed a particular threshold, mortgage interest, and charitable contributions. Keeping more significant tax benefits in mind, taxpayers choose between standard deductions and itemized deductions.
Tax Credits
As compared to tax deductions, tax credits directly decrease the amount of tax owed, dollar by dollar. Tax credits can be of two types:
- Refundable credits
With refundable tax credits, you get a refund even if the amount of credit surpasses the tax amount that is owed. Some examples are Child Tax Credit and EITC (Earned Income Tax Credit).
- Non-refundable credits
Non-refundable credits can bring your tax liabilities to zero, but it does not give a refund if the credits surpass the amount of tax owed. Some examples are Lifetime Learning Credit and Child and Dependent Care Credit.
Savings maximization
In order to maximize savings as a taxpayer, you should explore all deductions and credits that you are eligible for. To achieve that, you should keep a detailed record of all your expenses and look at some tax planning strategies.
- Timing of Expenses
As a taxpayer, you can maximize your deductions by strategically timing some specific expenses.
- Retirement contributions
When you contribute to your retirement account, you not only secure your future but also decrease your total taxable income.
- Education Expenses
There are some expenses related to education, such as interest on student loans and expenditure on tuition, that may be eligible for some tax credits.
Role of a CPA in maximizing tax deductions and credits
When you hire CPAs, they bring their vast set of knowledge and expertise to the table. A CPA can help you or your business to attain maximum benefits through numerous tax deductions and credits available to you, which is only a handful of all the advantages of hiring a Certified Public Accountant.
