Get to know these tax-saving terms

As you begin to think about scheduling your midyear tax planning appointment, refresh your memory on the meanings of terms that can save you money. Here are three.

  • Exclusions are items that would generally be included on your return, but are specifically excluded by a tax law provision. For example, gifts and inheritances you receive are excluded from your income – you simply don’t report them on your federal tax return.
  • By definition, a deduction means an amount is subtracted from your income. Tax deductions fit into four general categories.

Above the line deductions, such as alimony paid, can be claimed even if you don’t itemize.

Itemized deductions are a specific group of expenses, including amounts you pay for certain taxes, medical costs, charitable donations, mortgage interest, and disaster losses.

The standard deduction is a simplified substitute for itemized deductions. It’s a flat amount you can use to reduce your gross income instead of itemizing each allowable expense.

Business deductions are the ordinary and necessary expenses required for carrying on your trade or business.

  • Income tax credits are subtracted from the tax you owe. Note the difference from the definition of deductions, which reduce your income and indirectly reduce your final tax bill.

Tax credits can be refundable, meaning you’ll get money back if the credit exceeds the amount of tax you owe. Nonrefundable credits can only reduce your tax to zero.

These terms can be confusing. Call if you have questions about these tax-savers and how including them in your midyear planning can benefit you.

About Brenda J. McGivern, CPA

Brenda McGivern started her own certified public accounting and management consulting firm in October 2001. The full service CPA firm provides tax and accounting solutions to meet the needs of today’s small business and individual. Brenda McGivern has become a trusted advisor and valuable resource her clients rely on for timely, accurate assistance when they need it.

Before starting the firm, she worked as an accountant for three years at a local firm and prior to that five years at a large international CPA firm in Boston. She has performed the following tax services: federal, state and local tax planning, international tax planning, estate and succession planning, mergers and acquisitions, capital retention and IRS representation. She has also coordinated assurance engagements, such as financial statement audits, reviews and compilations from the planning phase through the reporting phase. She has prepared and reviewed regulatory filings for numerous regulatory agencies including the Security and Exchange Commission.

Prior to these positions she was selected from over 2,000 candidates into an eight-person intensive financial management program at an international technology company. The program consisted of graduate level classroom study and two six-month rotational assignments in financial operations.

She graduated cum laude from the University of Massachusetts at Amherst and holds a Bachelors Degree in Business Administration with a concentration in accounting. McGivern also holds a license in Massachusetts as a Certified Public Accountant and is a member of the American Society of Certified Public Accountants and the Massachusetts Society of Certified Public Accountants. She resides in Stoughton, Massachusetts with her husband Brian, and their sons Sean, Ryan and Conor and their dog, Davis.

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