Taxes can be challenging to understand. The tax code is not user-friendly. It is difficult for many people to understand how much they need to pay and what steps they can take to reduce the amount they pay every year. Many benefit from small business tax services in Columbus. These services help them get a better understanding of their taxes.
One of the biggest questions people have answered when using small business tax services in Columbus is finding out the difference between a credit, exemption, and deduction. Basically, exemptions and deductions work the same way. They lower your taxable income, which lowers your tax bill.
For example, if you have a $1,000 deduction and you are in the 20 percent tax bracket, you will save $200 on your taxes. If you get an exemption for $3,800, you will save about $760 on your taxes. The difference between a deduction and an exemption is what you can take them for. For example, deductions can be taken for charitable donations, tax prep fees, and interest.
However, an exemption is what you get for the makeup of your family. For example, you might get an exemption for your children or dependents.
Tax credits, on the other hand, are a direct deduction from your taxes. If you get a $2,000 credit, your tax bill is lowered by $2,000.
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