A tax deduction only reduces your taxable income. An actual tax credit will reduce the amount you owe in taxes.

Here is an example:

John Smith has an adjustable gross income of $25,000. The tax owed on $25,000 is $835 + 15% of the amount over $8,350 according to the federal tax bracket. The tax owed would be $3,332.50. ($835 + (($25,000 – $8,350) * .15))

Tax Deductiom

A tax deduction of $1,000 would result in the new tax amount of $3,182.50. ($835 + (($25,000 – $8,350 - $1,000) * .15))

Tax Credit

A tax deduction of $1,000 would result in the new tax amount of $2,332.500. ($835 + (($25,000 – $8,350) * .15)) - $1,000

As you can see, a tax credit will give you a dollar for dollar reduction in the amount of taxes owed and can save you much more money such as seen in the example above.

There are no limits on Medicare taxes, so you will still be paying Medicare taxes even after your hit your limit for the Social Security tax. If you are employed by a employer, then you only pay half of the two taxes. The other half is paid by your employer.

If you are self employed, then you need to pay the entire share of the taxes. The good thing is that you are able to deduct half of the self-employment tax as a business expense.

CPAs recommend that you should try to withhold at least 90 percent of what you think you will owe in taxes for that year but no more than that. If you withhold more than that, thats like giving the government a free no interest loan.

Myths about Tax Refund Checks
A tax refund check is not free money! It is your money that the IRS has decided to return to you because you overpaid on your taxes. If your tax refund tax is large, then that means you are having too much money deducted from your paychecks. You need to have that amount changed right away and used that extra cash to pay off debt instead of loaning it at no interest.

Check Online Tax Refund Status
The IRS’ online English tax refund status site is available 24/7 as well as their Spanish site. Simply enter your tax EIN or social security number, filing status and your expected refund amount.

Check Tax Refund Status Through Phone
You can also can check the status of your refund by calling the IRS Refund Hotline at 800-829-1954 or the IRS TeleTax System at 800-829-4477. When calling, you will still need to provide the same information as required for online access.

How Soon Can I Check?
Allow for at least 72 hours if you e-filed your taxes and allow for close to 3 to 4 weeks if you mailed in your tax returns.

Realistically, your chance of having your personal tax return being audited is close to .06%, or 1 in 150. With the millions of tax payers, the chances are probably a lot lower than that.

Experts argue that the best way to minimize your chances of being audited by the IRS is to file your taxes on time and use some sort of software to double check your math. A CPA once told me to simply ask yourself the question, “Can you talk about your expense with a straight face?”, and if you can’t, then you probably shouldn’t think about putting the expense down.

Make sure you keep all paper records for at least 6 years even though the IRS only has 3 years to audit a return, but if they find out that you underreported your gross income by more than 25 percent, then some states have a longer statue of limitations.

Another sound advice is to make sure your income justifies your expenses. In other words, if you made $10,000 and try to report $50,000 in business expenses, your tax return may be flagged. Note that if these are actual documented expenses, by all means, do not cheat yourself out of those business expense deductions. However, if the $50,000 was spent on a family vacation to Europe, it may be a tough sell.

Marriage Filing Status Decisions
Getting married affects your tax situtation by giving you an option of either filing jointly, married or separately. Check with your tax expert or accountant to see whats the best option for you and your spouse.

Marriage Tax Benefits
Marriage can definitely help if one spouse decides to stay at home which can result in a good amount of tax benefits.

The above definition was taken directly from the IRS website. In plain English, the IRS will accept a lower tax repayment if you are able to prove that you cannot pay the entire bill. Remember, the IRS is a government agency and they will have access to banks, city documents that they may look into to see if you have any real property or personal property that can be used to pay the tax bill.

What Are My Chances?
If you are able to prove your inability to pay off your huge tax bill, chances are very high that the IRS will take your Offer in Compromise. There have been people who have reduced a $50,000 tax bill to about $8,000 since they simply did not have any money to pay the government. The best bet is if you have a huge tax bill, is to go through a CPA and employ their services. Most CPAs have submitted hundreds of Offer in Compromise and know the best strategies in getting it approved. Visit this Tax Settlement site to be contacted by a professional.

How Do File an Offer In Compromise?
There is an initial $150 application fee that must be submitted along with Form 656. There are 3 payment options that taxpayers are able to select:

• Lump Sum Cash Offer
• Short Term Periodic Payment Offer
• Deferred Periodic Payment Offer

Read more at the IRS website.

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Form 1040 (Schedule A)
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How Many Exemptions Should I Claim?
Note that every person’s situtation will be unique but the typical exemption for a single person is one. If you have children in your household, the typical strategy is to add one for each child. For more information, check out the IRS withholding calculator.

CPAs recommend that you should try to withhold at least 90 percent of what you think you will owe in taxes for that year but no more than that. If you withhold more than that, thats like giving the government a free no interest loan.

Myths about Tax Refund Checks
A tax refund check is not free money! It is your money that the IRS has decided to return to you because you overpaid on your taxes. If your tax refund tax is large, then that means you are having too much money deducted from your paychecks. You need to have that amount changed right away and used that extra cash to pay off debt instead of loaning it at no interest.