Tax Preparation, Deductions, and Cautions...

“I am grateful and honored that I can work and earn enough to pay tax for this gracious country…”? Some may say “BS” and some may say “Robbery…”? But if you earn, you are required to pay tax.? So, one should be knowledgeable about the tax requirements and deductibles…? Hiding NOT recommended. IRS has an elephant memory and a long noose... What say ye…?

Many taxpayers reduce their tax bills significantly by deducting common expenditures from their income. To use these deductions, you have to itemize them on IRS Schedule A instead of taking the standard deduction. As we’ll explain in detail below, itemizable deductions include medical and dental expenses, state and local taxes, interest expenses, charitable contributions, and theft and casualty losses.? But before you claim any of these deductions, you have to be sure that your items qualify under tax law rules. Once you add them up, you need to compare the total amount of your itemized deductions with your standard deduction. Today’s higher standard deductions may offer greater savings than itemizing.

Below is a detailed list of the deductions you may be able to take, followed by information to help you decide whether to itemize or take the standard deduction. Finally, we’ll give a few tips on preparing your tax return to make sure you do the job right. First, let’s talk about write-offs.

Generally, personal expenses, other than qualifying medical expenses, are not deductible. Nondeductible expenses include—but are not limited to—alimony paid pursuant to agreements made or substantially modified after 2018, fines and penalties, funeral expenses, nonbusiness credit card or check-writing fees, and fines and penalties.? Following are the 7 Examples of tax write-offs:

1. Medical and dental expenses.??? ?Medical and dental expenses can be claimed as itemized deductions but only to the extent that the total amount of such expenses exceeds 7.5 % of your AGI, i.e., adjusted gross income, for the tax year. (AGI is the amount of your total gross income from all sources reduced by certain statutory exclusions, for example, tax-exempt interest.)

2. ‘SALT’(state and local taxes).? You can deduct up to $10,000 of state and local taxes—“SALT”—either state and local income taxes or state and local general sales taxes, but not both. ?Property taxes

3. Interest payments. ?? ?Generally, personal interest expenses are not deductible. However, interest payments for qualified home mortgage loans, certain student loans, and some investment expenses can be deducted.

4. Charitable contributions.??? Charitable contributions to qualifying organizations—whether in cash, property or as out-of-pocket expenses incurred doing volunteer work for such organizations—are tax deductible. ??Qualifying charities include such organizations as the Boy Scouts of America, the Red Cross, the American Cancer Society, nonprofit hospitals and nonprofit schools, churches, and synagogues.

5. Casualty and theft losses.??? ? Individual taxpayers who suffer casualty or theft losses of personal use, i.e., non-business and non-income-producing property, in tax years 2018 through 2025 cannot deduct such losses unless the loss is attributable to a federally declared disaster.

6. Exclusions from income.?? ?? ??Common above-the-line exclusions are tax-exempt interest, certain insurance proceeds, employer contributions to qualified retirement and health insurance plans, and distributions from Roth IRAs.

7. Tax credits.??????? Most credits have very specific requirements such as income phase-outs, student or first-time homebuyer status, or purchases of residential clean energy equipment or electric vehicles. Workers with low and moderate incomes can claim the refundable earned income tax credit (EITC). If you have dependent children, you may qualify for the child tax credit. You also may be able to claim a child and dependent care tax credit for paying someone to care for a child, spouse, or other dependent to work or be a full-time student.

Standard deduction vs. itemized deductions

Tax-return preparation.?????? Preparing your tax return may be a simple process if you have only W-2 earnings and Form 1099 interest and dividends to report and claim a standard deduction. You can easily transfer amounts from your information returns to a Form 1040. However, even with a simple return, you might overlook some tax benefits, for example, the earned income or child tax credits, and pay more tax than legally required.? Even if your tax situation is straightforward, seeking publicly available information and using tax preparation tools can save you money. The IRS provides a free online tax filing tool on its website for taxpayers whose AGI does not exceed a ceiling amount, which was $73,000 for 2022 returns. The decision to prepare your own return, use tax-preparation software, or consult a tax professional such as a CPA or credentialed enrolled agent, will depend on the complexity of your financial affairs, your familiarity with tax concepts, and your willingness and ability to devote time and money to tax compliance.

?

Why and How does the government collect taxes?? ???? ? Governments collect taxes primarily to generate revenue to fund public services and infrastructure. Taxes are crucial for financing essential government functions such as education, healthcare, defense, transportation, and social welfare programs. Additionally, taxes can be used to regulate certain behaviors or industries, redistribute wealth, and stabilize the economy through fiscal policy.

There are several methods governments use to collect taxes:??? Income Tax: Individuals and businesses are required to pay a percentage of their income to the government. This can be collected through withholding taxes from paychecks, self-reporting, or direct assessment by tax authorities.? Sales Tax: A percentage is added to the sale of goods and services, collected at the point of purchase.? Property Tax: Owners of real estate must pay taxes based on the assessed value of their properties.? Corporate Tax: Businesses are taxed on their profits.? Excise Tax: Levied on specific goods such as alcohol, tobacco, fuel, and luxury items.? Customs Duties: Taxes imposed on goods imported or exported between countries.

Red Flags for Tax Audits.??? ? ??There are several factors that may trigger closer scrutiny from tax authorities:? Generally, Large Fluctuations in Income or Expenses, High Deductions or Credits, Self-Employment, Unreported Income, Questionable Deductions, International Transactions, Random Selection (Sometimes, individuals or businesses are selected for audit randomly as part of routine compliance efforts)…

It's important to maintain accurate records, report income truthfully, and seek professional advice if you have any concerns about your tax situation to minimize the risk of an audit.

?

~S. Vincent Shin,??? ? ?www.dhirubhai.net/in/vshin

?

Be Vigilant. Be Safe.

“Stay Curious” and “Think for Yourself.”?? Always decide on your terms.? This is my research and analysis. Perhaps you should take a closer look at them and do additional investigation and scrutiny if they interest you. (SVS)

==================================?

References (Not limited to):

https://www.irs.gov/

https://www.irs.gov/credits-and-deductions

https://www.irs.gov/newsroom/resources-to-help-you-prepare-your-tax-return-and-resolve-tax-disputes

https://time.com/personal-finance/article/common-write-offs-you-can-deduct-from-your-taxes/

https://www.bench.co/blog/tax-tips/small-business-tax-deductions

https://blog.turbotax.intuit.com/taxes-101/what-is-a-tax-write-off-4490/

ChatGPT

?