tax credit system

  1. Tax Planning for Beginners: 6 Tax Strategies & Concepts
  2. 1. Tax planning starts with understanding your tax bracket
  3. 2. The difference between tax deductions and tax credits
  4. 3. Taking the standard deduction vs. itemizing
  5. What is the standard deduction?
  6. What does 'itemize' mean?
  7. 4. Being aware of popular tax deductions and credits
  8. 5. Knowing what tax records to keep
  9. 6. Tax strategies to shelter income or cut your tax bill
  10. Tweak your W-4
  11. Put money in a 401(k)
  12. Put money in an IRA
  13. Open a 529 account
  14. Fund your flexible spending account (FSA)
  15. Use Dependent Care Flexible Spending Accounts (DCFSAs)
  16. Maximize Health Savings Accounts (HSAs)
  17. See more ways to save and invest for the future
  18. Working Tax Credit
  19. How much can you get?
  20. If your income goes up
  21. If your income goes down
  22. Экономический словарь — значение слова Tax Credit System (система Налогового Кредита)
  23. Смотреть значение Tax Credit System (система Налогового Кредита) в других словарях
  24. Посмотреть в Wikipedia статью для Tax Credit System (система Налогового Кредита)
  25. Free Income Tax Calculator — Estimate Your Taxes
  26. Calculating Income Tax Rate
  27. Calculating Taxable Income Using Exemptions and Deductions
  28. How to Calculate Federal Tax Credits
  29. Calculating Your Tax Refund
  30. Paying Your Taxes
  31. State and Local Income Taxes
  32. GST input tax credit on supply of Goods or Services
  33. Update as on 3rd April 2020
  34. Update as on 1st Jan 2020
  35. Update as on 9th October 2019
  36. 2. Who can claim ITC?
  37. 3. What can be claimed as ITC?
  38. 4. How to claim ITC?
  39. 5. Reversal of Input Tax Credit
  40. 6. Reconciliation of ITC
  41. 7. Documents Required for Claiming ITC
  42. ITC is available for capital goods under GST.
  43. b. ITC on Job Work
  44. c. ITC Provided by Input Service Distributor (ISD)
  45. d. ITC on Transfer of Business

Tax Planning for Beginners: 6 Tax Strategies & Concepts

tax credit system

Tax planning is the analysis and arrangement of a person's financial situation in order to maximize tax breaks and minimize tax liabilities in a legal and efficient manner.

Tax rules can be complicated, but taking some time to know and use them for your benefit can change how much you end up paying (or getting back) in April. Here are some key tax planning and tax strategy concepts to understand before you make your next money move.

1. Tax planning starts with understanding your tax bracket

You can’t really plan for the future if you don’t know where you are today. So the first tax planning tip is get a grip on what federal tax bracket you’re in.

The United States has a progressive tax system. That means people with higher taxable incomes are subject to higher tax rates, while people with lower taxable incomes are subject to lower tax rates. There are seven federal income tax brackets: 10%, 12%, 22%, 24%, 32%, 35% and 37%.

No matter which bracket you’re in, you probably won’t pay that rate on your entire income. There are two reasons:

  1. You get to subtract tax deductions to determine your taxable income (that’s why your taxable income usually isn’t the same as your salary or total income).

  2. You don’t just multiply your tax bracket by your taxable income. Instead, the government divides your taxable income into chunks and then taxes each chunk at the corresponding rate.

For example, let’s say you’re a single filer with $32,000 in taxable income. That puts you in the 12% tax bracket in 2020. But do you pay 12% on all $32,000? No. Actually, you pay only 10% on the first $9,875; you pay 12% on the rest.

If you had $50,000 of taxable income, you’d pay 10% on that first $9,875 and 12% on the chunk of income between $9,876 and $40,125. And then you’d pay 22% on the rest, because some of your $50,000 of taxable income falls into the 22% tax bracket.

» MORE: See what tax bracket you’re in

2. The difference between tax deductions and tax credits

Tax deductions and tax credits may be the best part of preparing your tax return. Both reduce your tax bill, but in very different ways. Knowing the difference can create some very effective tax strategies that reduce your tax bill.

  • Tax deductions are specific expenses you’ve incurred that you can subtract from your taxable income. They reduce how much of your income is subject to taxes.
  • Tax credits are even better — they give you a dollar-for-dollar reduction in your tax bill. A tax credit valued at $1,000, for instance, lowers your tax bill by $1,000.
…or a $10,000 tax credit?
* Example rate. The U.S. has a progressive tax system.

» MORE: See a list of 20 common tax breaks

3. Taking the standard deduction vs. itemizing

Deciding whether to itemize or take the standard deduction is a big part of tax planning, because the choice can make a huge difference in your tax bill.

What is the standard deduction?

Basically, it’s a flat-dollar, no-questions-asked tax deduction. Taking the standard deduction makes tax prep go a lot faster, which is probably a big reason why many taxpayers do it instead of itemizing.

Congress sets the amount of the standard deduction, and it’s typically adjusted every year for inflation. The standard deduction that you qualify for depends on your filing status, as the table below shows.

Married, filing separately

What does 'itemize' mean?

Instead of taking the standard deduction, you can itemize your tax return, which means taking all the individual tax deductions that you qualify for, one by one.

  • Generally, people itemize if their itemized deductions add up to more than the standard deduction. A key part of their tax planning is to track their deductions through the year.
  • The drawback to itemizing is that it takes longer to do your taxes, and you have to be able to prove you qualified for your deductions.
  • You use IRS Schedule A to claim your itemized deductions.
  • Some tax strategies may make itemizing especially attractive. If you own a home, for example, your itemized deductions for mortgage interest and property taxes may easily add up to more than the standard deduction. That could save you money.
  • You might be able to itemize on your state tax return even if you take the standard deduction on your federal return.
  • The good news: Tax software or a good tax advisor can help you figure out which deductions you’re eligible for and whether they add up to more than the standard deduction.

» MORE: Find the right tax software for your tax situation this year

There are hundreds of possible deductions and credits out there, and they all have their own rules about who’s allowed to take them. Here are some big ones (click on the links to learn more).

5. Knowing what tax records to keep

Keeping tax returns and the documents you used to complete them is critical if you’re ever audited. Typically, the IRS has three years to decide whether to audit your return, so keep your records for at least that long. You also should hang onto tax records for three years if you file a claim for a credit or refund after you filed your original return.

Keep records longer in certain cases — if any of these circumstances apply, the IRS has a longer limit on auditing you:

  • Six years: If you underreported your income by more than 25%.
  • Seven years: If you wrote off the loss from a “worthless security.”
  • Indefinitely: If you committed tax fraud or you didn’t file a tax return.

» MORE: See more about how long to keep your tax records

  • Statements from charities.
  • Form 5498 (IRA contributions).
  • Form 8606 (nondeductible IRA contributions).
  • Transaction data (including individual purchase or sale receipts).

6. Tax strategies to shelter income or cut your tax bill

Deductions and credits are a great way to cut your tax bill, but there are other tax planning strategies that can help keep the IRS’ hands off your money. Here are some popular tax planning strategies.

Tweak your W-4

A W-4 tells your employer how much tax to withhold from your paycheck. Your employer remits that tax to the IRS on your behalf.

Generally, the more allowances you claim on your W-4, the less money will be taken your pay to go toward taxes. Claim fewer allowances on your W-4, and more of your pay should appear on your check.

Here's how to use the W-4 for tax planning.

  • If you got a huge tax bill in April and don’t want to relive that pain, you may want to increase your withholding. That could help you owe less (or nothing) next April.
  • If you got a huge refund last year and would rather have that money in your paycheck throughout the year, do the opposite and reduce your withholding.

» MORE: Learn how FICA and other payroll taxes work

Put money in a 401(k)

Your employer might offer a 401(k) savings and investing plan that gives you a tax break on money you set aside for retirement.

  • The IRS doesn’t tax what you divert directly from your paycheck into a 401(k). In 2020 and 2021, you can funnel up to $19,500 per year into an account. If you’re 50 or older, you can contribute up to $26,000.
  • If your employer matches some or all of your contribution, you’ll get free money to boot.

» MORE: Calculate how much you should put in your 401(k)

Put money in an IRA

You have until the April tax deadline to fund your IRA for the previous tax year, which gives you extra time to do some tax planning and take advantage of this strategy.

  • The tax advantage of a traditional IRA is that your contributions may be tax-deductible. How much you can deduct depends on whether you or your spouse is covered by a retirement plan at work and how much you make. You pay taxes when you take distributions in retirement (or if you make withdrawals prior to retirement).
  • The tax advantage of a Roth IRA is that your withdrawals in retirement are not taxed. You pay the taxes upfront; your contributions are not tax-deductible.
  • Earnings on your investments grow tax-free in a Roth and tax-deferred in a traditional IRA.

This table illustrates these accounts in action.

$6,000 in 2020 and 2021 ($7,000 if age 50 or older)$6,000 in 2020 and 2021 ($7,000 if age 50 or older)
  • Qualified withdrawals in retirement are tax-free.
  • Contributions can be withdrawn at any time.
  • If deductible, contributions reduce taxable income in the year they are made.
  • No immediate tax benefit for contributing.
  • Ability to contribute is phased out at higher incomes.
  • Deductions may be phased out.
  • Distributions in retirement are taxed as ordinary income.
  • Contributions can be withdrawn at any time, tax- and penalty-free.
  • Unless you meet an exception, early withdrawals of earnings may be subject to a 10% penalty and income taxes.
  • Unless you meet an exception, early withdrawals of contributions and earnings are taxed and subject to a 10% penalty.

» MORE: How to find the right kind of IRA for you

Open a 529 account

These savings accounts, operated by most states and some educational institutions, help people save for college.

  • You can’t deduct contributions on your federal income taxes, but you might be able to on your state return if you’re putting money into your state’s 529 plan.
  • There may be gift-tax consequences if your contributions plus any other gifts to a particular beneficiary exceed $15,000 in 2020.

» MORE: Learn more about how 529s work

Fund your flexible spending account (FSA)

If your employer offers a flexible spending account, take advantage of it to lower your tax bill. The IRS lets you funnel tax-free dollars directly from your paycheck into your FSA every year; the limit is $2,750 for 2020 and 2021.

  • You’ll have to use the money during the calendar year for medical and dental expenses, but you can also use it for related everyday items such as bandages, pregnancy test kits, breast pumps and acupuncture for yourself and your qualified dependents. You may lose what you don’t use, so take time to calculate your expected medical and dental expenses for the coming year.
  • Some employers might let you carry over up to $550 to the next year.

Use Dependent Care Flexible Spending Accounts (DCFSAs)

This FSA with a twist is another handy way to reduce your tax bill — if your employer offers it.

  • The IRS will exclude up to $5,000 of your pay that you have your employer divert to a Dependent Care FSA account, which means you’ll avoid paying taxes on that money. That can be huge for parents of kids under 13, because before- and after-school care, day care, preschool and day camps usually are allowed uses. Elder care may be included, too.
  • What’s covered can vary among employers, so check out your plan’s documents.

Maximize Health Savings Accounts (HSAs)

Health savings accounts are tax-exempt accounts you can use to pay medical expenses.

  • Contributions to HSAs are tax-deductible, and the withdrawals are tax-free, too, so long as you use them for qualified medical expenses.
  • If you have self-only high-deductible health coverage, you can contribute up to $3,550 in 2020. If you have family high-deductible coverage, you can contribute up to $7,100. Your employer may offer an HSA, but you can also start your own account at a bank or other financial institution.

» MORE: See the tax benefits of FSAs and HSAs

See more ways to save and invest for the future


Working Tax Credit

tax credit system

Working Tax Credit is designed to top up your earnings if you work and are on a low income.

However, it is being replaced by Universal Credit and most people now have to claim Universal Credit instead.

Use this guide to find out whether you’re still eligible for the benefit, how Working Tax Credit is affected by Universal Credit and what happens if you are already getting it.

Most people will not be able to make a new claim for Working Tax Credit and will be asked to apply for Universal Credit.

There are no limits to the hours you can work on Universal Credit as there were with Working Tax Credits.

Find out more about Universal Credit here.

You can usually only make a new claim for Working Tax Credit if you or your partner are getting the Severe Disability Premium.

Find out more about claiming Working Tax Credit on the GOV.UK.

If you’re already claiming Working Tax Credit, how and when you move depends on if you have to make a new claim because of a change in circumstances

You must tell the Tax Credit Office within 30 days if you have a change of circumstances, such as:

  • losing a job
  • having a child
  • start working less than 16 hours a week.

This might mean you will have to make a new claim for Universal Credit. The Tax Credit Office will tell you what you need to do.

Call the Tax Credit Helpline on 0345 300 3900 to let them know about any changes to your circumstances.

Find out more about how moving to Universal Credit will affect you here.

If you’re getting Working Tax Credit, work at least 16 hours a week and pay for childcare, you might be able to claim the ‘childcare element’ of Working Tax Credit to help with up to 70% of your childcare costs:

Looking for money guidance, but don’t know where to begin? You’re not alone. Get started with Money Navigator, giving you instant help your circumstances.

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  • if you’re in a couple, you need to be working at least 16 hours each to qualify
  • you can be eligible if you’re employed or self-employed

In most cases, you must use registered or approved childcare. This can include childminders, playgroups and nurseries.

Learn more about getting Help paying for childcare on GOV.UK.

How much can you get?


Because of the coronavirus outbreak, the government has announced Working Tax Credit is increasing by up to £86.67 a month for one year from 6 April 2020. The amount you will get depends on your circumstances.

With the childcare element, you can get help with up to 70% of your childcare costs, up to certain maximum weekly limits.

The table below shows how much you could get in the 2019/20 tax year:

Number of children If you pay up to: You could get up to:
1£175 a week£122.50 a week
2 or more£300 a week£210 a week

If you pay more than this for childcare, you will still only receive the maximum amount shown above.

If you qualify for the childcare element, you won’t necessarily get the full amounts.

How much you get will depend on:

  • your income
  • the hours you work
  • your childcare costs.

If you’re already claiming tax credits, call the Tax Credit Helpline to update your claim.

You need to renew your tax credits claim by 31 July every year if you want to keep getting them.

The Tax Credits Office will write to you to telling you what you need to do to renew your tax credits.

If your circumstances change at any time during the year (for example, if your income changes, your child leaves home or you move house), you should call the Tax Credit Office on 0345 300 3900 to let them know.

Changes in your circumstances can affect the amount of money you get, or mean you have to make a new claim for Universal Credit.

Find out more about Changes affecting your tax credits on GOV.UK. ?

A significant income change might count as a change in circumstances, which would mean you will have to make a new claim for Universal Credit instead of tax credits.

The amount by which your income can change before you have to tell the Tax Credit Office is £2,500. This is called the income disregard.

If your income goes up

If your income goes up by £2,500 or more and you delay telling the Tax Credit Office or wait until the next time your claim is due to be re-assessed, you might find you have been overpaid tax credits.

You’ll be asked to pay this extra money back, either by reducing your future tax credits or by direct payments if your tax credits have stopped.

To avoid a bill, it’s even more important to tell the Tax Credit Office within 30 days of when you get the extra money.

It’ll be easier for your tax credits to be adjusted, and decrease the chance you’ll be chased for overpayments at a later date.

If your income goes down

If your income falls by £2,500 or more, you might be entitled to more tax credits, or be asked to claim Universal Credit.

Tell the Tax Credit Office as soon as possible about your change of circumstances.

If you are asked to repay tax credits and will struggle to pay, speak to the Tax Credit Office as soon as you can,

Find out more about what to do if you are overpaid tax credits on the GOV.UK website.


Экономический словарь — значение слова Tax Credit System (система Налогового Кредита)

tax credit system

Система налогообложения, при которой физические лица, в зависимости от своих потребностей, пользуются налоговыми льготами; если сумма налога на их доход меньше суммы их налогового кредита, им может быть возмещено это превышение кредита. См. также: negative income tax (отрицательный подоходный налог).

Смотреть значение Tax Credit System (система Налогового Кредита) в других словарях

Блок-система — блок-системы, ж. (ж.-д.). Блокировка, блокировочная система. См. (блок).
Толковый словарь Ушакова

Система — ж. греч. план, порядок расположенья частей целого, предначертанное устройство, ход чего-либо, в последовательном, связном порядке. Солнечная система, солнечная вселенная………
Толковый словарь Даля

Система Ж. — 1. Структура, представляющая собою единство закономерно расположенных и функционирующих частей. 2. Определенный порядок в расположении, связи и действии составляющих……..
Толковый словарь Ефремовой

Административно-командная Система — — система управления экономикой страны, в которой главная роль принадлежит распределительным, командным методам и власть сосредоточена у центральных органов управления,……..
Политический словарь

Антрепренерская Система — — система рекрутирования элит, обладающая открытостью, широким кругом селектората и высокой конкурентностью отбора.
Политический словарь

Гильдий Система — — система рекрутирования элит, отличающаяся закрытостью, высокой степенью отбора, небольшим кругом селектората.
Политический словарь

Избирательная Система — — упорядоченная совокупность норм, правил и приемов, определяющих пути, формы и методы образования представительных и иных (напр., президентов, судей, присяжных) выборных……..
Политический словарь

Избирательная Система — — установленный в законодательном порядке процесс организации и проведения выборов в органы, институты государственной власти, состоящий из совокупности правил и……..
Политический словарь

Информационная Система — – организационно упорядоченная совокупность документов (массивов документов) и информационных технологий, в том числе с использованием средств вычислительной техники……..
Политический словарь

Командно-административная Система Управления — — жесткая система управления народным хозяйством, основанная на иерархическом распределении функций управления и не допускающая отклонений от заранее намеченных……..
Политический словарь

Мажоритарная Избирательная Система — (фр. majoritaire от majorite — большинство) — процедура определения результатов ания, при которой избранным считается тот кандидат, который набрал большинство ………
Политический словарь

Мажоритарная Система — — (франц. majorite — большинство), в государственном праве система определения результатов ания при выборах в представительные органы. При мажоритарной системе……..
Политический словарь

Партийная Система — — совокупность связей и отношений между партиями, претендующими на обладание властью в стране.
Политический словарь

Политическая Система Общества — — одна из подсистем общества (наряду с экономической, социальной, духовно-идеологической и др.), представляющая собой сложную, многообразную и в то же время упорядоченную,……..
Политический словарь

Политическая Система — (POLITICAL SYSTEM) — устойчивая форма человеческих отношений, через посредство которой принимаются и проводятся в жизнь авторитетно-властные решения для данного общества………
Политический словарь

Политическая Система Индустриально Развитых Стран (теория) — Политическая система представляет собой совокупность лиц, институтов, участвующих в политическом процессе, неформальных и неправительственных факторов, влияющих……..
Политический словарь

Политическая Система Общества — — сложная совокупность институциональных структур государства и общества, форм взаимодействия между ними, направленных на осуществление политической власти, управления,……..
Политический словарь

Правовая Система — разновидность социальной системы, котороя тесно связана с другими системами и включает в себя комплекс юридических явлений, с помощью которых воздействует на поведение человека.
Политический словарь

Прогнозирующая Система — Система методов прогнозирования и средств их реализации, функционирующая в соответствии с основными принципами прогнозирования. Примечания. 1. Средствами реализации……..
Политический словарь

Пропорциональная Избирательная Система — — избирательная система, при которой мандаты распределяются пропорционально голосам, полученными партиями или избирательными блоками.
Политический словарь

Пропорциональная Система Представительства — — избирательная система, в основу которой положен принцип пропорциональности между поданными за партию голосами избирателей и числом полученных ею мандатов (кандидаты……..
Политический словарь

Пропорциональная Система Представительтва — — одна из самых распространенных избирательных систем, при которой нет одного победителя, поскольку она основана на соответствии между количеством , поданных……..
Политический словарь

Репрессивная Система — — от слова «репрессии» (латинское «repressare», «подавлять»). Репрессии — меры по подавлению. Система подавления со стороны власти или государства нежелательных внутренних элементов……..
Политический словарь

Система Двухпартийная — — система, при которой реальную борьбу на выборах за власть в государстве ведут только две партии, причем одна из партий обеспечивает себе большинство избирателей,……..
Политический словарь

Система Избирательная — — совокупность избирательных прав и процедур, на основе которых осуществляются выборы в представительные органы власти или высших должностных лиц. Определение результатов……..
Политический словарь

Система Многопартийная — — система, в которой более двух партий имеют достаточно сильную организацию и влияние, чтобы воздействовать на функционирование правительственных институтов. В числе……..
Политический словарь

Система Однопартийная — — тема, при которой происходит закрепление (фактическое или юридического правящего статуса за одной из решенных политических партий, характеристики партийной систем……..
Политический словарь

Система Партийная — — механизм отношений, существующих между политическими партиями в данном государстве. Основными сторонами партийной системы являются особенности внутренней структуры……..
Политический словарь

Система Политическая — — представляет собой сложную, разветвленную совокупность различных политических институтов, социально-политических общностей, форм взаимодействия и взаимоотношений……..
Политический словарь

Система Сдержек И Противовесов — — такая система взаимоотношения органов власти и людей, приближенных к ним, в соответствии с которой каждый участник этих взаимоотношений не только уравновешивает,……..
Политический словарь

Посмотреть в Wikipedia статью для Tax Credit System (система Налогового Кредита)


Free Income Tax Calculator — Estimate Your Taxes

tax credit system
Photo credit: ©

The federal personal income tax that is administered by the Internal Revenue Service (IRS) is the largest source of revenue for the U.S. federal government.

Nearly all working Americans are required to file a tax return with the IRS each year.

In addition to this, most people pay taxes throughout the year in the form of payroll taxes that are withheld from their paychecks.

Income taxes in the U.S. are calculated tax rates that range from 10% to 37%. Taxpayers can lower their tax burden and the amount of taxes they owe by claiming deductions and credits.

A financial advisor can help you understand how taxes fit into your overall financial goals. Financial advisors can also help with investing and financial plans, including retirement, homeownership, insurance and more, to make sure you are preparing for the future.

Calculating Income Tax Rate

The United States has a progressive income tax. This means there are higher tax rates for higher income levels. These are called “marginal tax rates,» meaning they do not apply to total income, but only to the income within a specific range.

These ranges are called brackets. Income falling within a specific bracket is taxed at the rate for that bracket. The table below shows the tax brackets for the federal income tax. It also reflects the rates for the 2019 tax year, which are the taxes you pay in early 2020.

Taxable IncomeRate
Single Filers
$0 — $9,70010%
$9,700 — $39,47512%
$39,475 — $84,20022%
$84,200 — $160,72524%
$160,725 — $204,10032%
$204,100 — $510,30035%
Taxable IncomeRate
Married, Filing Jointly
$0 — $19,40010%
$19,400 — $78,95012%
$78,950 — $168,40022%
$168,400 — $321,45024%
$321,450 — $408,20032%
$408,200 — $612,35035%
Taxable IncomeRate
Married, Filing Separately
$0 — $9,70010%
$9,700 — $39,47512%
$39,475 — $84,20022%
$84,200 — $160,72524%
$160,725 — $204,10032%
$204,100 — $306,17535%

You’ll note that the brackets vary depending on whether you are single, married or the head of a household. These different categories are called filing statuses. Married persons can choose to file separately or jointly. While it often makes sense to file jointly, filing separately may be the better choice in certain situations.

the rates in the table above, a single filer with an income of $50,000 would have a top marginal tax rate of 22%. However, that taxpayer would not pay that rate on all $50,000.

The rate on the first $9,700 of taxable income would be 10%, then 12% on the next $29,775, then 22% on the final $10,525 falling in the third tax bracket. This is because marginal tax rates only apply to income that falls within that specific bracket.

these rates, this hypothetical $50,000 earner owes $6,858.50, an effective tax rate of 13.7%.

Calculating Taxable Income Using Exemptions and Deductions

Of course, calculating how much you owe in taxes is not quite that simple. For starters, federal tax rates apply only to taxable income. This is different than your total income (also called gross income). Taxable income is always lower than gross income since the U.S. allows taxpayers to deduct certain income from their gross income to determine taxable income.

To calculate taxable income, you begin by making certain adjustments from gross income to arrive at adjusted gross income (AGI). Once you have calculated adjusted gross income, you can subtract any deductions for which you qualify (either itemized or standard) to arrive at taxable income.

Note that for the 2019 tax year, there are no longer personal exemptions. Prior to 2018, taxpayers could claim a personal exemption ($4,050 in 2017), which lowered taxable income. The new tax plan signed by President Trump in late 2017 eliminated the personal exemption.

Deductions are somewhat more complicated. Many taxpayers claim the standard deduction, which varies depending on filing status, as shown in the table below.

Filing StatusStandard Deduction Amount
All Filers
Single Filers$12,200
Married, Filing Jointly$24,400
Married, Filing Separately$12,200
Head of Household$18,350

Some taxpayers, however, may choose to itemize their deductions. This means subtracting certain eligible expenses and expenditures. Possible deductions include those for student loan interest payments, contributions to an IRA, moving expenses and health-insurance contributions for self-employed persons. The most common itemized deductions also include:

  • Deduction for state and local taxes paid. Also known as the SALT deduction, it allows taxpayers to deduct up to $10,000 of any state and local property taxes plus either their state and local income taxes or sales taxes.
  • Deduction for mortgage interest paid. Interest paid on the mortgages for up to two homes, and a total of $1,000,000 in debt can be subtracted. Homes purchased after Dec. 15, 2017 will have this lowered to the first $750,000 of the mortgage.
  • Deduction for charitable contributions.
  • Deduction for medical expenses that exceed 7.5% of AGI. (Note that the income threshold was 10% until the new tax plan changed it to 7.5%.)

Keep in mind that most taxpayers don’t itemize their deductions. If the standard deduction is larger than the sum of your itemized deductions (as it is for many taxpayers), you receive the standard deduction.

Once you have subtracted deductions from your adjusted gross income, you have your taxable income. If your taxable income is zero, that means you do not owe any income tax.

How to Calculate Federal Tax Credits


Un adjustments and deductions, which apply to your income, tax credits apply to your tax liability (which means the amount of tax that you owe).

For example, if you calculate that you have tax liability of $1,000 your taxable income and your tax bracket, and you are eligible for a tax credit of $200, that would reduce your liability to $800. In other words, you would only owe $800.

Tax credits are only awarded in certain circumstances, however. Some credits are refundable, which means you can receive payment for them even if you don’t owe any income tax. (By contrast, nonrefundable tax credits can reduce your liability no lower than zero.) The list below describes the most common federal income tax credits.

  • The Earned Income Tax Credit is a refundable credit for taxpayers with income below a certain level. The credit can be up to $6,557 per year for taxpayers with three or more children, or lower amounts for taxpayers with two, one or no children.
  • The Child and Dependent Care Credit is a nonrefundable credit of up to $3,000 (for one child) or $6,000 (for two or more children) related to childcare expenses incurred while working or looking for work.
  • The Adoption Credit is a nonrefundable credit equal to certain expenses related to the adoption of a child.
  • The American Opportunity Credit is a partially refundable credit of up to $2,500 per year for enrollment fees, tuition and course materials for the first four years of post-secondary education.

There are numerous other credits, including credits for the installation of energy-efficient equipment, a credit for foreign taxes paid and a credit for health insurance payments in some situations.

Calculating Your Tax Refund

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Whether or not you get a tax refund depends on the amount of taxes you paid during the year (because they were withheld from your paycheck), your tax liability and whether or not you received any refundable tax credits.

When you file your tax return, if the amount of taxes you owe (your tax liability) is less than the amount that was withheld from your paycheck during the course of the year, you will receive a refund for the difference. This is the most common reason people receive a tax refund.

If you paid no taxes during the year and owe no taxes, but are eligible for one or more refundable tax credits, you will also receive a refund equal to the refundable amount of the credits.

Paying Your Taxes

If you aren’t getting a tax refund and instead owe money come tax day, there may be a way to lessen the sting. For starters, you should still file your taxes on time. Otherwise, you will also have to pay a fee for filing late.

If you don’t think you can afford your full tax bill, then you should pay as much as you can and contact the IRS at 1-800-829-1040. The agency may be able to offer you a few payment options to help you pay off your bill.

For example, the IRS may offer a short-term extension or temporarily delay collection. You may also have the option to pay your remaining bill over multiple installments. You will ly still pay any interest charges on overdue balances, but in some cases, the IRS may even waive penalties or fees.

Again, you should call the agency at the number above to discuss your options.

As you pay your tax bill, another thing to consider is using a tax-filing service that lets you pay your taxes by credit card. That way you can at least get valuable credit card rewards and points when you pay your bill.

The IRS has authorized three payment processors to collect tax payments by credit card: PayUSAtax, Pay1040 and Official Payments. However, it’s important to keep in mind that all three processors charge fees of about 2% of your payment for credit card payments.

If you had a bill of $100, a 2% fee would mean you pay an extra $2. Double check that any rewards you will earn are worth that extra cost.

The cheapest way to pay a tax bill is still via a check or via IRS Direct Pay, which allows you to pay your bill directly from a savings or checking account. All major tax filing services will provide you with instructions for both of these payment options.

State and Local Income Taxes

Many states, as well as some cities and counties, have their own income tax, which is collected in addition to the federal income tax. States that do have a state income tax require that you file a separate state tax return, as they have their own rules. If you are curious about a particular state’s tax system and rules, visit one of our state tax pages.

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GST input tax credit on supply of Goods or Services

tax credit system

One of the fundamental features of GST is the seamless flow of input credit across the chain (from the manufacture of goods till it is consumed) and across the country.

In this article, we will cover the following topics-

Update as on 3rd April 2020

The CBIC has notified that taxpayers can claim input tax credit in the GSTR-3B return from February 2020 to August 2020, without applying the rule of capping provisional ITC claims at 10% of the eligible ITC as per GSTR-2A. While filing the GSTR-3B of September 2020, the taxpayers must cumulatively adjust ITC as per the above rule from February 2020. 

Update as on 1st Jan 2020

The CBIC has revised the extent of provisional input tax credit claims from 20% to 10%.

Update as on 9th October 2019

The CBIC has notified that the input tax credit that can be availed by a registered person in respect of invoices or debit notes, will be restricted to 20% of of the eligible credit available in respect of invoices or debit notes as per details uploaded by the suppliers.

Input credit means at the time of paying tax on output, you can reduce the tax you have already paid on inputs and pay the balance amount.

Here’s how-

When you buy a product/service from a registered dealer you pay taxes on the purchase. On selling, you collect the tax. You adjust the taxes paid at the time of purchase with the amount of output tax (tax on sales) and balance liability of tax (tax on sales minus tax on purchase) has to be paid to the government. This mechanism is called utilization of input tax credit.

For example- you are a manufacturer: a. Tax payable on output (FINAL PRODUCT) is Rs 450 b. Tax paid on input (PURCHASES) is Rs 300 c. You can claim INPUT CREDIT of Rs 300 and you only need to deposit Rs 150 in taxes.

2. Who can claim ITC?

ITC can be claimed by a person registered under GST only if he fulfills ALL the conditions as prescribed.

a. The dealer should be in possession of tax invoice

b. The said goods/services have been received

c. Returns have been filed.

d. The tax charged has been paid to the government by the supplier.

e. When goods are received in installments ITC can be claimed only when the last lot is received.

f. No ITC will be allowed if depreciation has been claimed on tax component of a capital good

A person registered under composition scheme in GST cannot claim ITC.

3. What can be claimed as ITC?

ITC can be claimed only for business purposes. ITC will not be available for goods or services exclusively used for: a. Personal use b. Exempt supplies c. Supplies for which ITC is specifically not available

4. How to claim ITC?

All regular taxpayers must report the amount of input tax credit(ITC) in their monthly GST returns of Form GSTR-3B. The table 4 requires the summary figure of eligible ITC, Ineligible ITC and ITC reversed during the tax period.

The format of the Table 4 is given below: A taxpayer can claim ITC on a provisional basis in the GSTR-3B to an extent of 20% of the eligible ITC reported by suppliers in the auto-generated GSTR-2A return. Hence, a taxpayer should cross-check the GSTR-2A figure before proceeding to file GSTR-3B.

A taxpayer could have claimed any amount of provisional ITC until 9 October 2019. But, the CBIC has notified that from 9 October 2019, a taxpayer can only claim not more than 20% of the eligible ITC available in the GSTR-2A as provisional ITC.

This means taht the amount of ITC reported in the GSTR-3B from 9 October 2019 will be the total of the actual ITC in GSTR-2A and the provisional ITC being 20% of the actual eligible ITC in the GSTR-2A. Hence, matching of the purchase register or expense ledger with the GSTR-2A becomes crucial.

5. Reversal of Input Tax Credit

ITC can be availed only on goods and services for business purposes. If they are used for non-business (personal) purposes, or for making exempt supplies ITC cannot be claimed . Apart from these, there are certain other situations where ITC will be reversed.

ITC will be reversed in the following cases-

1) Non-payment of invoices in 180 days– ITC will be reversed for invoices which were not paid within 180 days of issue.

2) Credit note issued to ISD by seller– This is for ISD. If a credit note was issued by the seller to the HO then the ITC subsequently reduced will be reversed.

3) Inputs partly for business purpose and partly for exempted supplies or for personal use – This is for businesses which use inputs for both business and non-business (personal) purpose. ITC used in the portion of input goods/services used for the personal purpose must be reversed proportionately.

4) Capital goods partly for business and partly for exempted supplies or for personal use – This is similar to above except that it concerns capital goods.

5) ITC reversed is less than required- This is calculated after the annual return is furnished. If total ITC on inputs of exempted/non-business purpose is more than the ITC actually reversed during the year then the difference amount will be added to output liability. Interest will be applicable.

The details of reversal of ITC will be furnished in GSTR-3B. To find out more about the segregation of ITC into business and personal use and subsequent calculations, please visit our article.

6. Reconciliation of ITC

ITC claimed by the person has to match with the details specified by his supplier in his GST return.

In case of any mismatch, the supplier and recipient would be communicated regarding discrepancies after the filling of GSTR-3B. Learn how to go about reconciliation through our article on GSTR-2A Reconciliation.

Please read our article on the detailed explanation of the reasons for mismatch of ITC and procedure to be followed to apply for re-claim of ITC.

7. Documents Required for Claiming ITC

The following documents are required for claiming ITC: 1. Invoice issued by the supplier of goods/services 2. The debit note issued by the supplier to the recipient (if any) 3. Bill of entry 4.

An invoice issued under certain circumstances the bill of supply issued instead of tax invoice if the amount is less than Rs 200 or in situations where the reverse charge is applicable as per GST law. 5.

An invoice or credit note issued by the Input Service Distributor(ISD) as per the invoice rules under GST. 6. A bill of supply issued by the supplier of goods and services or both.

ITC is available for capital goods under GST.

However, ITC is not available for- i. Capital Goods used exclusively for making exempted goods ii. Capital Goods used exclusively for non-business (personal) purposes Note: No ITC will be allowed if depreciation has been claimed on tax component of capital goods.

b. ITC on Job Work

A principal manufacturer may send goods for further processing to a job worker. For example, a shoe manufacturing company sends half-made shoes (upper part) to job workers who will fit the soles. In such a situation the principal manufacturer will be allowed to take credit of tax paid on the purchase of such goods sent on job work.

ITC will be allowed when goods are sent to job worker in both the cases:

  1. From principal’s place of business
  2. Directly from the place of supply of the supplier of such goods

However, to enjoy ITC, the goods sent must be received back by the principal within 1 year (3 years for capital goods).

c. ITC Provided by Input Service Distributor (ISD)

An input service distributor (ISD) can be the head office (mostly) or a branch office or registered office of the registered person under GST. ISD collects the input tax credit on all the purchases made and distribute it to all the recipients (branches) under different heads CGST, SGST/UTGST, IGST or cess.

d. ITC on Transfer of Business

This applies in cases of amalgamations/mergers/transfer of business. The transferor will have available ITC which will be passed to the transferee at the time of transfer of business.

Please visit our other articles discussing ITC under GST in detail.


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