7 Most Common Tax Questions Answered by a CPA
There's a lot to understand when it comes to filing your taxes. To help you navigate the process, we've outlined seven tax questions you can ask your CPA–from how to decide whether to take the standard or itemized deductions to the differences between marginal and effective tax rates–as well as some examples of answers you might receive. Use this guide as a starting point.
Key Takeaways
- You can often reduce your taxable income by contributing to an employer-sponsored retirement plan or your own Individual Retirement Account (IRA).
- If you have dependents, you may qualify for the Child Tax Credit, a partially refundable credit worth up to $2,000 per qualified child for 2024.
- Almost everyone qualifies for the Standard Deduction or itemized deductions that reduce your taxable income. These are often the largest deductions available to you.
- If you have a side hustle, work as an independent contractor, or own a small business, you can deduct many of the costs related to running and maintaining your business.
CPAs are here to help
When looking for a professional to answer your tax questions, you want to search for certified public accountants (CPAs). Many CPAs specialize in preparing tax returns for both individuals and small, medium and large businesses.
7 popular questions to ask your tax preparer and some samples of the answers you might receive.
Tap into the knowledge and expertise of these tax professionals by reviewing a few of the most commonly asked CPA tax advice questions below.
1. How can I reduce my tax bill?
The tax code provides several ways to control your tax bill through tax adjustments, deductions and credits. Tax deductions allow you to reduce your taxable income, and tax credits allow you to directly reduce your tax liability.
When you make income from a job, you can often reduce your taxable income by contributing to an employer-sponsored retirement plan such as a 401(k) or your own individual retirement account (IRA). You may also have a high deductible health plan through your employer with access to a health savings account (HSA) or flexible spending account (FSA).
All of these accounts allow you to contribute pretax dollars to invest or hold in cash for saving or for certain expenses. As a result, these contributions lower your taxable income and save you money on your tax bill.
If you have dependents, you may qualify for the Child Tax Credit, a partially refundable credit meant to lower the cost of raising a child. This credit, worth up to $2,000 for each qualifying child for 2024, lowers your tax bill dollar for dollar. And there’s the Child and Dependent Care Credit that can provide a credit of up to $2,100 for qualifying expenses for taking care of your dependents so that you can work or look for work.
2. What kind of deductions do I qualify for?
Nearly everyone qualifies for either the Standard Deduction or itemized deductions that reduce your taxable income. These are often the largest deductions available to you.
As mentioned above, employees can often deduct contributions made to IRAs, HSAs and FSAs when preparing Form 1040. Further, you might qualify for deducting student loan interest if you meet certain income criteria as well as home mortgage interest, state and local taxes and more.
If you have a side hustle, work as an independent contractor, or own a small business, you can deduct the qualifying costs related to running and maintaining your business. You have access to deductions for your home office, self-employment taxes, supplies, equipment, depreciation, health and business insurance, utilities and much more.
3. What is the difference between marginal and effective tax rates?
The United States uses a progressive tax system. This means that as you earn more income, you could move into a higher tax bracket. The US has seven tax brackets for 2024. The lowest begins at 10% on taxable income of $1, and the highest starts at 37% on taxable income above $609,350 for Single filers ($731,200 for Married Filing Jointly couples). The bracket that your last taxable dollar falls in is considered your marginal tax rate.
For example, if you file as Single in 2024 and your taxable income was $525,000 then your marginal tax rate would be 35% because this amount falls in the 35% bracket.
Your effective tax rate is different from your marginal tax rate because it reflects your average tax rather than your highest tax bracket. For example, if you have some income taxed at 10% and some at 15% then your average or effective rate will be somewhere in between these two. Just divide your total tax by your total taxable income and this will give you your effective tax rate.
4. Which is better: a tax credit or a tax deduction?
A tax credit is often preferable to a tax deduction, but it can depend on the eligibility requirements of each deduction and credit. Tax credits reduce your tax liability dollar-for-dollar while tax deductions lower your taxable income. For example, if you prepare your taxes and have a total tax bill of $10,000, a $1,000 tax credit would reduce your bill by that amount.
If you had a $1,000 tax deduction and earned $50,000 in taxable income, your income tax liability wouldn't decrease by $1,000. Instead, your taxable income would now be $49,000. So a $1,000 tax deduction can save anywhere from $0 to $370 depending on your tax bracket. Compare this to the $1,000 tax reduction you could get from a $1,000 tax credit.
5. Can I deduct medical expenses?
Each year, the IRS lets you deduct unreimbursed expenses for qualifying medical expenses. The qualified expenses should exceed 7.5% of your adjusted gross income (AGI). These expenses can come from cost like:
- preventative care
- medical treatments
- surgeries
- dental and vision care
- psychologist and psychiatrist visits
- prescription medications
- prescription appliances (such as glasses or contacts, false teeth, or hearing aids)
- travel expenses paid to receive this medical care (mileage, bus fare, and parking fees)
How much you can actually deduct depends on several factors. It’s primarily dependent on your income and whether you itemize your deductions or take the Standard Deduction.
For example, if your income is $100,000, and you itemize your deductions, you can deduct any unreimbursed medical expenses in excess of 7.5% of your income. That means you could deduct any unreimbursed expenses that exceed $7,500 (7.5% of $100,000). So, if you had $10,000 in unreimbursed qualifying medical expenses, you can include $2,500 ($10,000 - $7,500) in your itemized deductions.
6. Should I itemize my deductions or take the Standard Deduction?
In 2024, the Standard Deduction comes to $14,600 for Single taxpayers and $29,200 for Married Filing Jointly taxpayers. You should calculate your itemized deductions and compare them to the Standard Deduction each year to get the most out of the tax savings available to you.
7. How can I stay up to date with tax laws and changes?
A CPA can provide the answers to your tax-related questions and make sure that you are filing a tax return that is accurate and provides you with the best outcome. These CPA tax advice insights are invaluable. For even more personalized answers, connect with a local TurboTax Live Full Service expert who can address your unique questions.
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