Tax credits and deductions seem similar, but they are actually different.
Nashville, TN – There are a number of rules related to individual taxes that can help a person save money, if they are aware of how these rules work and can benefit them. One such tax rule is called the earned income tax credit, which is essentially a way of the government helping individuals with relatively low income. Lawyers can provide more information about matters such as tax credits, deductions, and ways to legally save money when filing. Here is a short summary of how the earned income tax credit helps.
What is earned income tax credit?
The IRS considers many sources of money to be earned income. A person’s income usually comes from their salary at their job, but this can also include things like tips, if the person receives bonuses, and any commission for their work. Some people do not make enough money through their standard wages and income to be financially stable when considering the taxes they must pay and their other costs of living. The government allows an earned income tax credit as a way for these individuals below a certain income level to save money. Nashville tax lawyers or other tax professionals can determine whether a person is eligible for the earned income tax credit or not.
Who is eligible for the earned income credits?
Generally speaking, income is the main factor that determines whether this credit is available. Things like dependents or disability status can be considered, but once the person reaches a certain income, they cannot get the credit. The person claiming the credit either needs to be a U.S. citizen, or they must have lived in the country the entire tax year that corresponds to the time they are filing. These income limits tend to change over the years, and the threshold can also vary based on whether taxes are filed as an individual, or jointly as a married couple.
Is this credit a deduction?
Tax credits and deductions seem similar, but they are actually different. The purpose of a deduction is to make the amount of income that the government can tax lower. A credit is a way of lowering a person taxes that they owe, without making changes to their taxable income. Tennessee tax lawyers can guide those who need additional info about deductions or any available credits. Tax lawyers also help manage deductions properly, as excessive claims can trigger an audit.
Does investment income count towards the earned income limit?
Yes, there is a limit on the amount a person can obtain through their investments and still claim the earned income credit. Estate planning lawyers routinely help people manage their investments and all related tax issues that emerge. They can also assist with forming trusts and transferring wealth through a will.
Additional tax law info
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