What is the difference between a tax deduction and a tax credit?
A deduction lowers the amount of income that is taxed, so its value depends on your tax bracket. A credit reduces your tax bill dollar for dollar, which usually makes it more valuable. Some credits are even refundable, meaning they can increase your refund beyond the tax you owe.
How long should I keep my tax records?
The IRS generally recommends keeping returns and supporting documents for at least three years from the date you filed. Keep them six years if income may have been underreported by more than 25%, seven years if you claimed a loss from worthless securities or bad debt, and at least four years for payroll records. Records for property you own should be kept until the period runs out for the year you sell it.
I can’t pay my full tax bill. Should I still file on time?
Yes. The penalty for filing late is usually much larger than the penalty for paying late, so filing on time and paying what you can limits the cost. The IRS also offers payment plans, and interest and penalties stop growing once the balance is paid.
Does a tax extension give me more time to pay?
No. An extension gives you more time to file your return, typically six months, but any tax you owe is still due on the original deadline. Estimating your balance and paying it with the extension request helps you avoid interest and late-payment penalties.
Who needs to make quarterly estimated tax payments?
If you are self-employed, own a business, or have income without withholding (such as rental income, investment gains, or side work), you may need to pay estimated taxes four times a year. Individuals generally must make them if they expect to owe $1,000 or more when they file. Paying enough during the year helps you avoid an underpayment penalty and a large bill in April.
Should my business be an LLC or an S corporation?
They answer different questions. An LLC is a legal structure set up under state law, while an S corporation is a federal tax election that an LLC or corporation can choose. An S corporation election can reduce self-employment taxes for some profitable businesses, but it adds payroll and compliance requirements, so it is worth reviewing your numbers with a professional before deciding.
I received a letter from the IRS. What should I do?
Don’t ignore it. Read it carefully, note the response deadline, and compare it with your return. Most letters simply ask for information or explain an adjustment. The IRS usually makes first contact by mail and does not demand payment by gift card, text, or social media, so treat those messages as scams. If you’re unsure how to respond, we can review the letter with you.