In the United States, the term “tax break” is often used pejoratively, as if to imply the inherent unfairness of any regulation that does not tax everyone in exactly the same manner. However, there are valid policy reasons that cause different people to be taxed accordingly. Still, due to the stigma associated with passing ‘tax breaks,’ legislatures do not often publicize them unless they will apply to a wide swath of people. Because of this, it is very likely that you are eligible for tax breaks you may not be aware of.

Credits, Deductions and Exemptions

Under the law, there are many categories of ‘tax break,’ and they all differ in terms of the procedure used to claim them.

A tax credit allows you to subtract a certain amount from the amount of tax you owe the government. New York has several tax credit options, most of which mirror those found on the federal return. The major credit that differs is called the Empire State child tax credit. Many states have tax credits for qualifying children, but the amount of the New York credit is specifically contingent on whether someone has claimed the federal child tax credit as well – if not, the amount of the credit will be significantly less.

New York City has a number of tax credits specific to its residents, most notably the school and household credits, which require at least part-time residency in one of the five boroughs. The amounts of these credits are small, but sometimes they can make the difference between a payable tax bill and an unpleasant surprise.

Deductions are perhaps the most common, and they occur when money is directly deducted from gross income. For example, many charitable donations are tax-deductible, which means that they are removed from your gross income, lowering the overall amount on which you owe state and federal taxes. In New York, there are several deductions offered in addition to the standard. Some of the most commonly missed deductions lie in education – for example, if you make a contribution to New York’s 529 Plan, which helps parents save for their children’s college fund (or another post-secondary school option).

Exemptions, by comparison, are more widespread than either credits or deductions. If something is tax-exempt, its entire class of entity is usually exempt, meaning that no tax of any kind has to be paid. For example, certain pensions classed as governmental are tax exempt in New York – that means that no tax is taken out of the income from any petition that fits the classification.

Common Errors

Sometimes errors made on your tax return can actually cancel out or delay a tax deduction or credit, because the information provided may not sufficiently establish that you are entitled to that credit. For example, the state of New York reports that many people use the wrong identification number on their return – whether due to typographical error or an outdated taxpayer identification number, such a mistake can throw some of your tax credits into doubt, because the Internal Revenue Service will not possess the information that proves your eligibility.

In New York specifically, another significant issue is that residents of Yonkers and New York City file their city tax returns along with the forms for New York State. If you forget, or send the papers separately, you run the risk of being audited for discrepancies. If that happens, not receiving credit will likely be the least of your problems.

Contact A Tax Attorney For Help

American tax laws are routinely cited as the most difficult and confusing for the average person to deal with. If you need professional help understanding which tax credits you can claim, or straightening out discrepancies with the Internal Revenue Service, we can help. Our tax attorneys have years of experience that we are happy to put to work for you. Contact our New York City office today for a free initial consultation.