Understanding the difference between refundable and non-refundable tax credits reduces a tax bill or results in bigger refunds, says Vancouver-based US Tax Accountant
North Vancouver, BC -- (ReleaseWire) -- 04/18/2019 --Understanding how taxes work can be difficult—it's the reason so many people opt to work with tax accountants. As a firm of US tax accountants in Vancouver, the team at US Tax Professionals wants people to understand that not all tax credits are created equal. Understanding the difference between refundable and non-refundable deductions, as well as tax credits and deductions, are important for those who want to minimize payments and maximize returns. For more, go to: https://us-taxprofessionals.com/newsletter.php#5
The article beings by explaining the difference between a tax credit and a tax deduction.
Tax credits reduce tax liability and are more valuable dollar for dollar than tax deductions that reduce your taxable income and are tied to the marginal tax bracket.
Consider the difference between a tax credit of $1,000 and a tax deduction of $1,000 for a taxpayer whose income places them in the 22% tax bracket:
- A tax credit worth $1,000 reduces the amount of tax owed by $1,000—the same dollar amount.
- A tax deduction worth the same amount ($1,000) only saves you $330, however (0.22 x $1,000 = $220).
In this case, the tax credits result in more savings than tax deductions.
A refundable tax credit not only reduces the federal taxes owed but also could result in a refund. Let's say a taxpayer is eligible to take a $1,000 Child Tax Credit but only owes $200 in taxes. The additional amount ($800) will be treated as a refund.
On the other hand, a nonrefundable tax credit means only refunds up to the amount owing. For example, if a taxpayer is eligible to take an American Opportunity Tax Credit worth $1,000 and the amount of tax owed is only $800, you can only reduce your taxable amount by $800, not the full $1,000.
The blog concludes by providing a list of refundable tax credits, non-refundable tax credits, and partially refundable tax credits.
It's important for dual Canadians and Americans living and working cross-border to understand and take advantage of opportunities to reduce taxes and save income. To connect with an experienced US tax accountant in Vancouver, please contact US Tax Professionals at (604) 281-3318.
About US Tax Professionals
US Tax Professionals provide US tax services in Vancouver for dual American and Canadian citizens. Founded in 2013, they specialize in taxation for US citizens and expats, taxation and accounting for business, cross-border taxation for US and Canadian citizens, as well as accounting and taxation of alternative investments, including private equity funds and hedge funds.
For more information, visit https://www.us-taxprofessionals.com/ or call (604) 281-3318
US Tax Professionals
Company Website: https://www.us-taxprofessionals.com