Dear Friends,

I hope that the videos this week and last week will encourage you that you are not alone in feeling confused or overwhelmed by tax preparation.  It is very normal to worry that you are “missing something” on your taxes when you prepare them yourself or to worry that you might be inadvertently violating a tax law that you aren’t fully informed about.  For those reasons, as I said last week, it can be a very wise move to get professional help in preparing your tax return, especially if you have a complicated business situation, a recent move, or other major life change that has impacted you financially.

However, I want to encourage you today that you can become well versed in some of the more common tax definitions.  Even if you hire a professional, it is wise to have a basic working knowledge of tax terminology.  A basic idea you need to understand is the difference between a tax credit and a tax deduction.  As I explained in the video, a tax credit (such as an education or childcare credit) comes into play after you have figured out how much you owe in taxes (your tax liability).  At that point, you subtract your tax credits, dollar for dollar, from your preliminary tax liability and figure the lower, actual tax liability.  On the other hand, a tax deduction (such as a charitable contribution or mortgage interest) is subtracted from your total income, before you figure your tax liability.  So, the deduction reduces your income, which, in turn, decreases your tax liability, while the credit directly reduces your tax liability.

There are many excellent tax programs (such as TurboTax, H&R Block, or TaxACT) that will guide you through your taxes, step by step, and look for your tax deductions and credits as you go.  Don’t be afraid to try one out before you turn to a tax professional.  It may be easier than you think!

May God’s peace encourage you as you pursue financial wisdom and depend on His Truth.

Blessings,

Ron


Click here for the video transcript