If you're a business owner, you most likely have tax questions and tax concerns. Simply put, it makes dollars and sense to partner with an experienced tax professional for personalized guidance and advice.
Whether it's a question about your personal taxes, including earned income tax credit, child tax credit, or a question about your business taxes, such as tax filing deadline or maximized tax deduction—the seasoned tax professionals at John F. Dennehy can help.
Don't hesitate to reach out to us today for a tax preparation and tax planning consultation. In the meantime, let's take a closer look at some of the most common tax questions for businesses and individuals.
Common Tax Questions for Businesses
Three of the top questions small business owners have over the tax return, include the tax deduction and tax credit.
Does My Small Business Qualify for Taxable Income Deductions?
Yes! Virtually all businesses qualify for money-saving tax deductions. Tax deductions are designed to reduce your taxable income, which could increase a tax refund or reduce how you pay taxes.
To maximize your business tax deductions, you should consider itemized deductions vs standard deductions. While itemized deductions can take longer to file a tax return, they are usually most effective at reducing taxable income.
However, using itemized deductions takes time and expertise. And this is why savvy business owners partner with an experienced tax professional for tax preparation and tax planning.
Which Business Expenses Are Tax Deductible?
As a business owner, most expenses are deductible against your federal income tax return. This means the deductions can lower your tax bill or increase your tax return.
Examples of Tax-Deductible Expenses
Examples of deductible business expenses include:
Examples of Non-Tax Deductible Expenses
Because of the vast number of deductions you can use to reduce your taxable income, it's usually easier to explain what can’t be deducted, such as:
As previously mentioned, one of the best ways to minimize your tax obligations or maximize your tax return is to work with an experienced tax professional or tax advisor.
Should I Use a Tax Deduction or a Tax Credit?
If your business is eligible for both, you should undoubtedly use them. However, a tax credit is different from a tax deduction.
Tax Deductions Decrease Overall Taxable Income
Tax deductions decrease your overall gross income or taxable income. For example, if your business earns $100,000 in gross income and uses $20,000 in tax deductions, your business taxable income would be reduced to $80,000. This could have two helpful effects in a progressive tax system:
- It can potentially reduce your tax brackets, which can reduce the marginal tax rate
- In doing so, it can reduce the taxable income you owe.
A Tax Credit Can Directly Reduce Your Tax Bill
A tax credit, on the other hand, can reduce your overall tax bill on a dollar-for-dollar basis. For instance, if your business owes $5,000 for the previous tax year, a $5,000 tax credit would mean you owe nothing.
As you can see both tax credits and tax deductions can be extremely valuable on your federal income tax return. It's important to work with a seasoned tax preparer or tax preparation professional to maximize both tax credits and deductions every tax year.
Common Tax Questions for Individuals
Here are three of the top questions individuals have about the tax law when they file a tax return.
What Is the Filing Status?
The filing status is a key component of the tax code that can determine the rate at which you are taxed. There are five different filing status categories. They include:
- Single filing status
- Married filing jointly filing status
- Married filing separately filing status
- Head of household filing status
- Qualifying widow(er) with dependent child filing status
Each individual one will dictate you being taxed at a different federal income tax rate. For example, married filing jointly is generally taxed less and tends to pay lower state and local taxes than someone who chooses single filing status.
Who Are Eligible for Dependent Care Tax Credits?
Families are eligible for the dependent care tax credit if they paid for child care during the year for a child that is under the age of 13 and claimed as a dependent. The dependent care tax credit may also be applicable to:
The credit can help reduce income taxes. It's based on your income and the percentage of expenses you incur to care for the qualifying individual as you go to school, look for work, or work.
What's the Difference Between Marginal and Effective Tax Rates?
Effective and marginal tax rates are important matters during tax season and beyond. Marginal tax rate is your average tax rate. In other words, it's the portion of your total income you will be required to pay when you file a tax return.
On the other hand, the marginal tax rate is the amount of tax applicable to every extra level of income. Because we use a progressive tax system, our tax code requires you to pay more in taxes as you earn more.
Contact John F. Dennehy CPA
At John F. Dennehy, we are a team of experienced tax planning and tax preparation professionals. We offer years of helping individuals and businesses maximize every tax return.
Whether you have questions about a qualifying child, the American Opportunity Tax Credit, medicare tax, inheritance tax, your Health Savings Account, self-employment tax, or any other area, we can help.
Contact John F. Dennehy CPA today for experience tax assistance.