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A tax charged on the financial income of persons, corporations, or other legal entities is known as income tax. Nowadays, various income tax systems exist in the financial market with varying degrees of tax incidence. The income taxation can be categorized under progressive, proportional or regressive. Individual income tax is charged on the total income of the individual (with some deductions permitted), while corporate income tax is on the net income.
Income tax time or financial closing dates are hectic and stressful time of the year. As a matter of fact, you have to make sure of all your receipts and money matter concerns in a proper order. This helps you to know about your expenses and savings which you have made in the previous financial year. Moreover, it assists you to save tax in next year by some modifications. With the help of valuable income tax tips you can reduce that you owe at tax time. Importantly, the amount you pay as tax makes a big difference!
Some important income tax tips are as follows:
Firstly, one must make use of tax credits, as tax credits are better than deductions. The tax credits usually lower the amount of money one owes to the IRS. For instance, if your child is studying in college then you can easily claim for the education tax credit. As a matter of fact, you can open education savings account.
Secondly, one can itemize his or her deductions. If one has a home office or contributed money to charity then he or she can itemize his or her tax return rather than taking the standard deduction. No doubt, this entire process is time-consuming, but it’s worth the effort as one would be paying less tax at the end of financial year.
Thirdly and lastly, one can use his or her status to their advantage. For instance, if you’re married then you can choose to file tax account jointly or separately. But, if one file as his or her status as the head of family then he or she will get a larger standard deduction. As a matter of fact, filing of status determines tax exemptions.
At last one must review his or her overall tax situation and find-out the best ways to reduce tax and organize financial documents.
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