Property tax bills are a great burden if you haven’t planned your finances well. It can sometimes completely consume your income or drain your savings. It is always important to stay up-to-date about some of the money-saving tips or legal ways to cut down taxes. Well, What are the best money savers in your tax bill? Believe it or not but it is as simple as a deduction and tax credit.
What is a tax deduction?
A tax deduction directly reduces your amount of income which is liable for property tax laid by your appraisal district. Every income taxpayer has the right to pick standard deductions from their income account. Since it directly claims money from your income source, the major burden of spending your savings on tax bills can be reduced.
What is a tax credit?
A tax credit can directly cut down on tax bills. It helps in the reduction of owned tax amounts to the government. But tax credits cannot be claimed by all taxpayers; they can be utilized by certain individuals or business-related property owners. Tax credits are divided into three types:
- Partially Refundable
- Non-refundable
- Refundable
Here is an example of your tax bill with deduction and credit
|
Title |
Deduction |
Credit |
|
Income |
$500,000 |
$500,000 |
|
Tax deduction (-) |
($10,000) |
0 |
|
Income after tax deductions |
$490,000 | $500,000 |
| Tax rate given by CAD | 20% |
20% |
|
Total taxes |
$98000 | 100000 |
|
Tax credit (-) |
($10,000) |
|
| Tax bill | $98000 |
$90,000 |
How can any taxpayer claim their deductions?
There are a couple of methods to claim tax deductions. They are :
- Standard deduction
- Itemize deductions
The standardized deductions are based on your filing status such as
- Single
- Married (filing jointly)
- Married (filing separately),
- Head of the house,
- Age above 65
These are the filing status which you can pick from. The itemizing deduction is based on more deductions, fewer taxes. But you cannot opt for both deductions at the same time. Opting for a standard deduction is better because filing options can be chosen by us!
This is how tax deductions and tax credits happen and if you need to stay updated about such interesting blog posts, then Cut My Taxes can help you out!