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How do tax reduction strategies work?

On Behalf of | May 28, 2021 | Estate Planning |

Connecticut residents may find the federal tax code often encourages legal reduction steps. Deductions find their way into the code thanks to laws passed by Congress. Anyone eligible to take deductions or credits could cut down on what they owe, and some might receive a refund. Taxpayers need to be aware of their tax bracket, as this knowledge will also provide information about what they owe on their taxable income.

Tax reduction options

Taxpayers should understand the difference between tax reduction strategies and tax credits. Tax credits, such as the earned income tax credit and the child and dependent care credit, lower how much tax someone owes. Of course, the person must qualify for the credit to receive it.

Tax reduction plans involve taking deductions intended to reduce taxable income. Someone running a home-based business could explore “business use of a home” deductions. A professional who spends much time on the road may deduct travel expenses.

The deductions must be legitimate ones. Someone who uses personal expenses to make business deductions may end up in serious trouble. Such actions could fall under the category of fraud.

Learning about available deductions

The average taxpayer might not be aware of the many different deductions available. Reading credible sources of information could provide insights, although it might be best to make sure a deduction is legitimate. Asking an attorney or accountant about tax reduction strategies may prove helpful.

Audits are possible, and taxpayers might find the IRS requesting more information. Once again, this may be an instance where contacting a professional for assistance could be the right plan.