|tax question (non-political)||mohair_chair|
Jan 22, 2003 11:50 AM
|I'm starting to do my taxes, and there seem to be a couple of places where you can take something as a deduction or a credit. (Sorry, can't think of one off the top of my head.) I know there are some finance people here who might have an answer.
I understand that a deduction reduces your taxable income and a credit reduces the amount of tax. My question is, is there an advantage to doing one over the other? I would think they would typically produce the same result, but that a deduction could drop you a bracket if you were borderline.
|For a given amount, a credit is always better...||PdxMark|
Jan 22, 2003 12:27 PM
|if your goal is to pay lower taxes.
A credit directly reduces the tax you pay by the amount of the credit. A deduction reduces your taxable income which, at a net 20% tax rate, means that your taxes are reduced by 20% of the deduction amount.
A change in tax brackets only affects the tax paid on the income above the tax bracket threshold. If you have a 10% bracket on the first $10,000, a 15% bracket on everything else, and $11,000 of taxable income, you pay $1000 tax on the first $10k income and $150 on the next $1000 income. If the %15 bracket applies to everything over $11k, you pay $1000 tax on the first $10k income and $100 one the next $1000 income.
|best tip I can give you||ColnagoFE|
Jan 22, 2003 1:28 PM
|Unless you are single, own no property, have no investments, and only have one source of income where you get taxes witheld from, you are almost always gonna save $ (let alone many headaches) by having a qualified CPA do your taxes. My 2c anyway.|
|re: tax question (non-political)||53T|
Jan 22, 2003 1:52 PM
|I've been doing my taxes for a long time. I've owned rental property, lived in two different states, had three employers in one year and taken early distributions from 401Ks as well as a lot of other complicated tax issues. Yet, I have never had an item where I was given a choice of a decuction or a credit. Therefore, the first thing you should check is if you are really reading the instructions correcly. It is likely that you do not have a choice. Also there are very few tax credits that apply to working people, you do work, right?|
|foreign taxes paid||mohair_chair|
Jan 22, 2003 2:06 PM
|This is one of the items that can be either an itemized deduction or a tax credit. If you have any investments that deal in foreign entities, you will probably end up paying some foreign taxes. Look for it on your statements.|
Jan 23, 2003 6:20 PM
|A non-domestic mutual fund will usually pass onto you about $10 in foreign taxes paid.
Why would you take an deduction (worth ~$2.60) instead of a credit (worth 10.00)? If you owe no taxes? Then both options are worth 0.
|Mortgage Credit Certificate (mcc)||ALBikeGuy|
Jan 23, 2003 6:51 AM
|This is another way that you can apply a tax credit for something. In this, you can apply a portion of you interest paid (20% in my case) as a tax credit. Of course, this 20% cannot be used as a deduction.
I'm not sure if you can get a mcc anymore, but I'm sure if you have one, you'd know it!