| The beginning of 2008 is a time to reflect on the | | | | The first is recognition of partial payment already |
| previous year and plan for the future, which is a fun | | | | made towards taxes due. The second describes a |
| and inspiring thing to do. However, it is also that time of | | | | state benefit, which is paid to employees through the |
| year when you have to start paying your taxes as | | | | tax system. The latter has an effect of increasing net |
| part of your planning. The first step is to prepare for it, | | | | income. |
| and that includes understanding the difference | | | | An example of a tax credit is a Working Tax Credit in |
| between a tax credit and tax deductions. | | | | the UK. This is for people who are employed or |
| The simple explanation is that deductions lower your | | | | self-employed with children. You must work 16 hours |
| taxable income and credits lower your taxes. An | | | | or more a week and expect to work for at least 4 |
| example of a deduction would be charity donations. If | | | | weeks. You have to be 16 years of age and |
| taxpayers donate cash or property to qualified | | | | responsible for at least one child, aged 16 and disabled |
| non-profit organisations, especially a sizeable amount, | | | | or aged 25 or over and work 30 hours a week. |
| these are tax deductible. Which means you can apply | | | | Every country has a different system of tax credits |
| for the money back on your forms. | | | | and deductions for taxpayers to choose from. It is |
| Home mortgage interest can also be deductible from | | | | advisable to check them when filing your forms, as |
| tax. On the Form 1040, Schedule A, the mortgage | | | | there are a fair amount of deductions and credits that |
| interest is reported. Here you can also find a list of | | | | taxpayers forget about and don't apply for. For |
| other types of items that can be deducted from. | | | | example, taxpayers can apply for a student loan |
| Items that are deducted affect a taxpayer's income | | | | interest deduction, tuition and fees deductions and |
| tax. The amount is subtracted from a gross income, | | | | even moving expenses. |
| from which the taxpayer computes his or her income | | | | You might think that the total isn't much, but if you add |
| taxes. This has a chain reaction on the overall taxable | | | | it up here and there, it works out to be a large sum of |
| income, ultimately lowering it. The amount of tax | | | | money. Plus it is your money and you have a right to |
| payment saved is dependent on the tax rate, which is | | | | apply for it, if it is applicable. The process has been |
| where it can start becoming a bit complicated. | | | | designed to be simple, and most taxpayers are able to |
| Tax credit is similar but it is not dependent on the rate | | | | go to their local tax website for information, forms and |
| the taxpayer pays. It reduces the tax paid, amount per | | | | help on the matter. |
| amount. There are two different types of tax credit. | | | | |