A tax deduction reduces your taxable income, while a tax credit directly reduces your tax liability dollar-for-dollar. For example, if you're in the 22% tax bracket, a $1,000 deduction would save you $220 in taxes, while a $1,000 tax credit would save you the full $1,000. This makes tax credits generally more valuable than deductions of the same amount.

Tax credits can be refundable or non-refundable. Refundable credits can result in a refund even if you don't owe any tax, while non-refundable credits can only reduce your tax liability to zero.

The U.S. uses a progressive tax system with marginal tax brackets. This means different portions of your income are taxed at different rates. Your "tax bracket" refers to the highest rate that applies to any portion of your income, not the rate that applies to all your income.

For example, if you're single with a taxable income of $60,000 in 2024, you fall in the 22% bracket, but you don't pay 22% on all your income. Instead:

• The first $11,600 is taxed at 10% = $1,160
• The amount from $11,601 to $47,150 is taxed at 12% = $4,266
• The amount from $47,151 to $60,000 is taxed at 22% = $2,827

Your total tax would be $8,253, which is an effective tax rate of about 13.8% on your total taxable income.

You should itemize deductions when the total of your eligible itemized deductions exceeds the standard deduction for your filing status. Common itemized deductions include:

• Mortgage interest
• State and local taxes (up to $10,000)
• Charitable contributions
• Medical expenses (exceeding 7.5% of your AGI)

With the higher standard deductions implemented by the Tax Cuts and Jobs Act, fewer taxpayers benefit from itemizing. However, if you have a mortgage, live in a high-tax state, have significant medical expenses, or make substantial charitable donations, itemizing might still be advantageous.

Use our tax return calculator to compare both methods and determine which provides the greater benefit for your situation.

Business owners have several strategies to reduce their tax liability:

• Maximize business deductions: Track and deduct all legitimate business expenses, including home office, vehicle expenses, supplies, and professional services.
• Retirement plans: Establish a SEP IRA, SIMPLE IRA, or Solo 401(k) to make tax-deductible contributions for yourself and any employees.
• Hire family members: Employ your children or spouse to shift income and potentially reduce overall family tax liability.
• Business structure optimization: Consider whether your current business structure (sole proprietorship, LLC, S corporation, etc.) is the most tax-efficient for your situation.
• Timing of income and expenses: Defer income to the next tax year or accelerate deductions into the current year when beneficial.
• Section 179 deduction: Deduct the full cost of qualifying equipment purchases in the year they're placed in service, rather than depreciating them over time.
• Qualified Business Income (QBI) deduction: Take advantage of the 20% deduction for qualified business income under Section 199A if eligible.

Consult with a tax professional to develop a comprehensive tax strategy tailored to your specific business situation.

The forms you need depend on your specific situation, but common forms include:

• Form 1040: The main individual income tax return form that everyone files
• Schedule A: For itemizing deductions
• Schedule B: For reporting interest and dividend income
• Schedule C: For reporting business income as a sole proprietor
• Schedule D: For reporting capital gains and losses
• Schedule E: For reporting rental property, royalties, partnerships, S corporations, etc.
• Schedule SE: For calculating self-employment tax
• Form 8949: For reporting sales and exchanges of capital assets
• Form 8962: For reconciling Premium Tax Credits for health insurance
• Form 8863:Form 8863: For claiming education credits
• Form 8889: For reporting Health Savings Account (HSA) contributions and distributions
• Form 8995: For calculating the Qualified Business Income deduction

You'll also need supporting documents like W-2s, 1099s, 1098s, and receipts for deductible expenses. Tax preparation software or a professional tax preparer can help determine which specific forms you need based on your financial situation.

The IRS imposes several penalties for late filing and payment:

• Failure-to-file penalty: 5% of the unpaid tax required to be reported for each month or part of a month your return is late, up to 25%. If your return is more than 60 days late, the minimum penalty is $485 (for tax returns due in 2024) or 100% of the tax required to be shown on the return, whichever is less.
• Failure-to-pay penalty: 0.5% of the unpaid tax for each month or part of a month the tax remains unpaid, up to 25%.
• Interest: In addition to penalties, interest accrues on unpaid tax from the due date until the date of payment. The interest rate is the federal short-term rate plus 3%, adjusted quarterly.
• Estimated tax penalty: If you don't pay enough tax through withholding and estimated tax payments throughout the year, you may owe an additional penalty.

If you can't file by the deadline, it's important to request an extension using Form 4868, which gives you an additional six months to file. However, an extension to file is not an extension to pay—you still need to estimate and pay any tax due by the original deadline to avoid penalties and interest.

If you can't pay the full amount owed, the IRS offers payment plans and other options. It's always better to file on time and pay what you can, even if you can't pay the full amount, to minimize penalties.

The IRS generally recommends keeping tax records for at least three years from the date you filed your return or two years from the date you paid the tax, whichever is later. This is the period during which the IRS can typically audit your return or you can amend your return to claim a credit or refund.

However, there are several situations where you should keep records longer:

• Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
• Keep records for 6 years if you omitted income that is more than 25% of the gross income shown on your return.
• Keep employment tax records for at least 4 years after the tax becomes due or is paid, whichever is later.
• Keep records indefinitely for assets like property, stocks, and business equipment until the period of limitations expires for the year in which you dispose of the property.
• Keep records indefinitely if you file a fraudulent return or don't file a return at all.

It's also a good idea to keep copies of your filed tax returns indefinitely, as they can help you prepare future returns and calculate basis when you sell property.

The Alternative Minimum Tax (AMT) is a parallel tax system designed to ensure that high-income taxpayers pay at least a minimum amount of tax, regardless of deductions and credits. It requires certain taxpayers to calculate their tax liability twice—once under the regular tax system and once under the AMT system—and pay the higher amount.

The AMT calculation starts with your regular taxable income, then adds back certain tax preferences and adjustments, such as:

• State and local tax deductions
• Personal exemptions (before 2018)
• Miscellaneous itemized deductions (before 2018)
• Interest on certain private activity bonds
• Certain accelerated depreciation
• Exercised incentive stock options (ISOs) where you haven't sold the stock

After these adjustments, you subtract the AMT exemption amount, which phases out at higher income levels. The resulting amount is multiplied by the AMT tax rates (26% on the first $220,700 and 28% on the excess for 2024 for married filing jointly).

The Tax Cuts and Jobs Act significantly reduced the number of taxpayers affected by the AMT by increasing the exemption amounts and phase-out thresholds, which are now indexed for inflation.

Use our tax return calculator to see if you might be subject to the AMT based on your income and deductions.

Working remotely or in multiple states can create complex tax situations:

• State residency: You're typically considered a resident of the state where you have your permanent home (domicile). As a resident, you're generally taxed on all income regardless of where it was earned.
• Nonresident state taxes: You may also owe taxes as a nonresident to states where you physically worked, even temporarily. Many states have a threshold (often based on days worked or income earned) before nonresident income tax filing is required.
• Convenience of employer rule: Some states (like New York) tax nonresidents on income earned while working remotely for an in-state employer, unless the remote work is for the employer's necessity rather than the employee's convenience.
• Tax credits for taxes paid to other states: To avoid double taxation, your resident state typically offers a credit for taxes paid to nonresident states, but these credits may not fully offset the additional tax burden.
• Local taxes: Some cities and counties impose their own income taxes, which can further complicate your tax situation.
• Reciprocity agreements: Some neighboring states have agreements that allow residents of one state to work in the other without filing nonresident returns.

If you work remotely or in multiple states, it's important to track the days you work in each location and consult with a tax professional familiar with multi-state taxation to ensure compliance with all applicable tax laws.

There are several ways to check the status of your federal tax refund:

• IRS "Where's My Refund?" tool: Visit the IRS website and use the "Where's My Refund?" tool. You'll need your Social Security number, filing status, and exact refund amount.
• IRS2Go mobile app: Download the official IRS app to check your refund status on your mobile device.
• Call the IRS: Call the IRS refund hotline at 800-829-1954. This automated system provides the same information as the online tool.

For most e-filed returns, you can check the status within 24 hours after the IRS acknowledges receipt of your return. For paper returns, you'll need to wait about 4 weeks before checking.

The "Where's My Refund?" tool shows three stages of processing:

1. Return Received: The IRS has received your tax return and is processing it.
2. Refund Approved: Your refund has been approved, and the IRS is preparing to send it.
3. Refund Sent: Your refund has been sent to your bank (for direct deposit) or a check has been mailed.

For state tax refunds, each state has its own refund tracking system, typically available on the state tax agency's website.