Year-round tax planning: Part 1

 All taxpayers should understand eligibility for credits and deductions

Tax credits and deductions can help lower the amount of tax owed. All taxpayers should begin planning now to take advantage of the credits and deductions they are eligible for when they file their 2022 federal income tax return next year.

Here are a few facts that can help taxpayers with their year-round tax planning:

• Adjusted Gross Income, or AGI, is a taxpayer’s total gross income minus specific deductions that can reduce the taxpayer’s income before calculating tax owed. AGI is the starting point for calculating taxes and determining a taxpayer’s eligibility for certain tax credits and deductions that can help lower their tax bill.
• Taxable income is a taxpayer’s AGI minus the standard deduction or itemized deductions, whichever is greater.
• The standard deduction is a set dollar amount that reduces taxable income. Most taxpayers have a choice of either taking a standard deduction or itemizing their deductions and using the option that lowers their tax the most.
• Properly claiming tax credits can reduce taxes owed or boost refunds.
• Some tax credits, like the earned income tax credit, are refundable, which means an eligible taxpayer can get money refunded to them even if they don’t owe any taxes.
• To claim a deduction or credit, taxpayers should keep records that show their eligibility for it.