{"id":162,"date":"2024-09-25T10:16:28","date_gmt":"2024-09-25T15:16:28","guid":{"rendered":"https:\/\/treecitytax.com\/blog\/?p=162"},"modified":"2025-12-29T12:30:49","modified_gmt":"2025-12-29T17:30:49","slug":"deductions-credits-101","status":"publish","type":"post","link":"https:\/\/treecitytax.com\/blog\/deductions-credits-101\/","title":{"rendered":"Deductions and Credits 101"},"content":{"rendered":"

Over the years, the tax code has offered deductions and credits for taxpayers to reduce their tax burden. Filing your taxes with or without claiming deductions or credits doesn\u2019t hurt the IRS, but it does mean that\u2019s money you leave on the table, and your government isn\u2019t going to correct your error. <\/span><\/p>\n

The federal government has a responsibility to collect revenues for the function of government. This means that they will let you know if you still owe them, or an error was discovered to their detriment, but they will not<\/strong> notify you if the error was to their benefit. So, what are these deductions and credits, and what are their impacts to your tax return?<\/span><\/p>\n

What Are Deductions?<\/b><\/h2>\n

Simply put, deductions are amounts of your taxable income that are excluded from tax. These deductions come in many forms, but most taxpayers are most familiar with the Standard Deduction. This is a sum that\u2019s excluded from your taxable income, like wages, taxable Social Security benefits, self-employment, and retirement distributions, to name a few. In the tax years following 2017, Standard Deduction was primarily used thanks to the Tax Cuts and Jobs Act (TCJA). This boosted the standard deduction, requiring less expense tracking for taxpayers who were looking for ways to save on their returns.<\/span><\/p>\n

In times before the TCJA, itemizing deductions was more common. Both standard and itemized deductions were available to taxpayers to reduce your taxable income. But since the TCJA, the standard deduction was greatly increased to make less of your gross income taxable, meaning that taxpayers didn\u2019t have to keep out of pocket medical receipts, track State and Local Taxes (SALT), and prove charitable contributions. Itemized deductions are reported on a Schedule A and are reported on the first page of the federal Form 1040 (SR, NR). Since the TCJA, Schedule A filing dropped and most taxpayers used the standard deduction.<\/span><\/p>\n

Businesses also have deductible expenses and scenarios to lower their taxable income. Business expenses vary from mileage deductions, business use of home deductions, any expenses applied to the business, and even something called a Qualified Business Income Deduction.<\/span><\/p>\n

The idea of deductions is to encourage growth for a business by reducing the amount of income counted towards your tax liability. They are not a reduction of tax due, to be clear. It\u2019s only a reduction of income included when calculating your taxes before it\u2019s applied to the tax brackets.<\/span><\/p>\n

What Are Tax Credits?<\/b><\/h2>\n

Tax credits are a dollar-for-dollar reduction in taxes you owe. This comes in many forms, like college tuition spend, children, earned income, energy and energy efficient vehicles and appliances, etc.\u00a0<\/span><\/p>\n

There are \u201crefundable\u201d and \u201cnonrefundable\u201d credits available to those eligible. Nonrefundable credits are dollar-for-dollar reductions in your tax that can reduce your tax bill to zero. Refundable credits are reductions in your tax that can overshoot the tax due and provide you a refund.<\/span><\/p>\n

Let\u2019s give two examples here. In the nonrefundable case, let\u2019s say you owe $100 in taxes, but you realize an energy efficient credit of $600 for a new, energy efficient furnace installed in the home. You would ultimately owe nothing in taxes. Now let\u2019s consider a refundable case, where you owe $100 in taxes, but you qualify for $800 in the American Opportunity Tax Credit. In this scenario, you would be refunded $700 on your tax return.<\/span><\/p>\n

Important Considerations<\/b><\/h2>\n

Deductions and credits are powerful tools to reduce your tax burden, but the tax credit has more bang for its buck compared to the deduction. You should always prove your ability to take advantage of deductions and credits, but because credits have a more tangible impact on tax due, due diligence is required to claim them. Documentation is crucial to proving that you qualify for these, and if ever you are audited by the IRS while taking a tax credit, you must provide proof of eligibility or there will be consequences, and they are steep.<\/span><\/p>\n

If you\u2019re ever in doubt about whether you\u2019re filing your return properly, consult a tax professional. If for no other reason than peace of mind, the cost to hire your tax filing out is well worth it.<\/span><\/p>\n

Tree City Tax is accepting new clients for the upcoming filing season, including small business returns. You can book a consultation by calling at (330) 539-4231. Small businesses that schedule a consult before the end of the year reduce their likelihood of filing an extension.<\/span><\/i><\/p>\n","protected":false},"excerpt":{"rendered":"

Mistakes happen on returns more often than not. If it\u2019s to the IRS\u2019s detriment, however, you will get a notice that\u2019s it\u2019s been corrected or you will need to correct it. Either way, you\u2019ll likely pay. But if you fail to take deductions and credits that you\u2019re entitled to, the IRS isn\u2019t responsible for letting you know that. Work with a professional in this area to get the deductions and credits you deserve, and stop leaving money on the table.<\/p>\n","protected":false},"author":2,"featured_media":163,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[21,20,17],"tags":[51,53,52,54],"class_list":["post-162","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-credits","category-deductions","category-tax-breaks","tag-standard-deduction","tag-tax-credits","tag-tax-deductions","tag-tax-refund"],"jetpack_featured_media_url":"https:\/\/treecitytax.com\/blog\/wp-content\/uploads\/2025\/01\/blog04.webp","_links":{"self":[{"href":"https:\/\/treecitytax.com\/blog\/wp-json\/wp\/v2\/posts\/162","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/treecitytax.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/treecitytax.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/treecitytax.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/treecitytax.com\/blog\/wp-json\/wp\/v2\/comments?post=162"}],"version-history":[{"count":4,"href":"https:\/\/treecitytax.com\/blog\/wp-json\/wp\/v2\/posts\/162\/revisions"}],"predecessor-version":[{"id":205,"href":"https:\/\/treecitytax.com\/blog\/wp-json\/wp\/v2\/posts\/162\/revisions\/205"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/treecitytax.com\/blog\/wp-json\/wp\/v2\/media\/163"}],"wp:attachment":[{"href":"https:\/\/treecitytax.com\/blog\/wp-json\/wp\/v2\/media?parent=162"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/treecitytax.com\/blog\/wp-json\/wp\/v2\/categories?post=162"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/treecitytax.com\/blog\/wp-json\/wp\/v2\/tags?post=162"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}