00:03One of the reasons I'm so passionate about finances is money is really a game and once
00:10you learn how to play the game, it becomes a lot more fun.
00:13Welcome to Money Talks.
00:17So today we're going to demystify what tax credits and tax deductions are and how to maximize them in your
00:24own financial life.
00:27A deduction is something that is going to lower your tax liability at your end.
00:32If you make $100,000 and you have $20,000 in tax write-offs or deductions, now your taxable income
00:40is $80,000.
00:42Versus a credit, which is a dollar-for-dollar reduction of the amount that you owe at the end of
00:47the year.
00:48So if you have a $2,000 credit, instead of owing $10,000 in taxes, now you only owe $8
00:54,000.
00:54You always want to take care of your deductions first when calculating your tax liability.
00:58Once you have applied all of those deductions, you can then search for any tax credits that are applicable to
01:03you
01:03to make that liability and the amount that you owe at the end of the year even lower.
01:08About seven years ago when I started my business, I was in my CPA's office and I felt so terrified
01:14to be honest.
01:15So if you've ever felt the same way I felt back then with tax credits and tax deductions, we're here
01:21to help you.
01:22Alright, so we have more questions. You ready?
01:25Absolutely.
01:25Wonderful. Our first one is from Vivian.
01:29My name is Vivian. I'm 26 years old. I would say that I am so adamant when it comes to
01:34contributing to my 401k, which I know is pre-tax dollars.
01:38But how does that impact the taxes I still owe?
01:40Ladies, let's clarify this question because I know a lot of people can relate to it.
01:46Yeah, so as you mentioned, you already know that these are pre-tax dollars.
01:50So with every amount that you contribute to your 401k up to a limit of $19,500 for the year
01:57is deducted from your paycheck, each paycheck that you receive, and it lowers your taxable income.
02:07Some of the most common deductions will be for student loan interest, your mortgage interest, any children that you have
02:14throughout the year can also be claimed as deductions.
02:16When you have your own home-based business, there are many deductions like communication expenses, cell phone expenses, car and
02:24mileage expenses, travel expenses, business meal expenses, wages and employee expenses.
02:31All of those things are deductions and or write-offs on your tax returns.
02:39The standard deduction is going to be a reduction to your taxable income that should in turn decrease the amount
02:47of taxes that you owe.
02:48Itemized deductions, however, are items that you list individually.
02:53So let's just say, for example, your interest deduction, your real estate tax deduction, your donations to charity.
03:02Anytime you donate clothing to a clothing drive, that counts as a charitable donation as well.
03:06You add all of those things up.
03:08If that number is higher than your standard deduction, then you're going to take the itemized deductions.
03:14We have another question from Mariah. Let's hear what she says.
03:18My name is Mariah Boone. I paid off $18,000 in student loans last year.
03:23How do I write off that $18,000? Do I include it as part of my income? Do I write
03:30it off as a deduction? Do I write off the interest on the student loan that I paid off?
03:35Mariah, great question. And I know you're not alone because a lot of people have student loan debt.
03:42And I'm sure trying to figure out how to maximize that when it comes to your taxes is some information
03:47we could all use.
03:48So experts, what do we have for her?
03:50So the way the tax code is written right now, you cannot deduct your student loan payments.
03:56You are able to write off up to $2,500 of interest related to those student loans.
04:02So definitely use that to your advantage and congratulations on paying off that student debt.
04:08The best investment is always yourself.
04:13I remember my first year in business, I thought I could write off the clothes that I was buying because
04:17I was buying them to wear them for my business.
04:19And they were like, no, you can't write off the clothes that you bought.
04:22You can't write off your hair styling and the makeup that you purchased, even though you use it when you
04:26record videos.
04:27So you do want to be very clear and everything is not a business expense that you can write off.
04:32You want to make sure that you're clear and have an understanding of based on your type of business, what
04:37the write offs are.
04:37You know, education, marketing, transportation or anything of that nature, different things you're using to grow your business.
04:45Because those can be used as business expenses or write offs.
04:48The IRS has given over 70,000 pages of rules.
04:52Find out which of those rules apply to your life.
04:54If you have children, find out where it works to work within the rules for having children.
05:00If you have a business, find out where those rules are.
05:03If you are single with no children, find out what the other deductions are.
05:08Find the rules, learn them, and then play the game by the rules so that you can get as much
05:15of that.
05:15As much of your hard-earned money in your pocket as possible.
05:17Wonderful explanations about credits and deductions.
05:20This is where you can really strategize with your money.
05:23Now stay tuned and learn how to choose a tax preparer.
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