Tax Gems Everyone Should Know

Published On: November 2nd, 2022Categories: Accounting, Small Business, Taxes

The tax code can be complicated and we don’t expect our clients to be experts. But here are a few tax gems that everyone should know.

Not everything is taxed
For instance, you can rent out your home for two weeks and pocket that income tax-free. Same with $250,000 (or $500,000 if filing jointly) for gains on the sale of your home. And many employee benefits are tax-free, too.

Credits are better than deductions
A credit is a dollar-for-dollar reduction in your tax bill. While a deduction simply lowers your taxable income. A great example of this is comparing the Child Tax Credit vs. the Student Loan Interest Deduction. Test your knowledge with Beat the Taxman here.

There is a marriage penalty
If we all lived our lives to lower our taxes, there would be a lot fewer married couples. The most common of these would be married seniors because their social security retirement benefits are more quickly taxed as a married couple than as two single retirees.

Only the few
The vast majority of income taxes are paid by a small percentage of taxpayers. According to recent IRS statistics, the top 25% account of tax filers who report more than $87,000 in taxable income account for 87% of income tax collected. Yet this group only makes up 69% of all reported taxable income.

Tax collection is not ethical
If the IRS thinks you owe more, they quickly point it out and automatically send you a tax bill. But, unfortunately, if the IRS can tell that you are entitled to a tax credit or deduction, and you don’t take it, they’re not known to adjust your tax bill in your favor unless they are legislated to do so.

The lesson in all of these tax gems is to get help. There is no reason to face the complexity of the tax code on your own. It’s always better when there’s someone on your side.

Share This Story, Choose Your Platform!

About the Author: Rachel McNerney