Basics of Income Taxes: Deductions and Credits

If you work, a certain amount of your paycheck is withheld each pay period, and it goes to the federal government as payroll taxes. At the end of the year, when your taxes are complete, you can see how much you paid in taxes all year to see if you will get money back. To help you save on your taxes, there are various tax credits and tax deductions that will benefit you.

Tax Deductions

When you work, you pay taxes based on how much you earn. A tax deduction lowers the total amount of your income to be taxed without affecting your take-home pay. With a tax deduction, you pay less in taxes.
Most taxpayers will subtract a pre-defined amount, or a standard deduction, from their income before paying taxes. For example, the standard deductionfor a single person is $5,950. For people who are married, have children, are blind, disabled or are over 65 years old, additional deductions may apply.
If you paid interest on your home loan, had large medical expenses, or paid many local or state taxes, you might take an itemized deduction instead. You should take the larger of the deductions—itemized or standard—you cannot take both.

Tax Credits

If you have to pay for certain items such as education or child care, you could receive a tax credit from the government. A tax credit reduces the amount of money you owe the government and often means money back to you.
For example, if you owe $1,500 this year in income taxes, but you qualify for a $1,000 Child Tax Credit, you would only pay $500 in income taxes.
Spread the love
Register New Account
Reset Password