6 Things Most People Don’t Understand About Taxes

 1. Marginal Tax Brackets:

• Understanding that taxes are marginal helps dispel the misconception that all income is taxed at one rate. It's crucial to know how each bracket affects your overall tax liability.

2. LLCs and Business Deductions:

• LLCs primarily serve to limit liability rather than offer direct tax savings. Business expenses are deductions, not dollar-for-dollar savings, and they're subject to your marginal tax rate.

3. Withholding vs. Tax Liability:

• Withholding throughout the year doesn't guarantee you won't owe taxes come tax time. It's important to accurately fill out your W4 to align withholding with your actual tax liability.

4. Mortgage Interest Deduction:

• While mortgage interest and other deductions can reduce taxable income, they only impact your return if they exceed the standard deduction. Many people overlook this when considering the tax benefits of homeownership.

5. Pass-Through Entity Taxation:

• Profits from pass-through entities like S Corps and partnerships are taxed whether or not they're distributed to owners. Understanding this ensures you're mindful of your business's financial decisions and tax obligations.

6. Real Estate Losses and Passive Activity Rules:

• While real estate losses can offset income, meeting material participation tests or utilizing specific strategies like the short-term rental loophole is essential. It's crucial to comply with IRS regulations to avoid potential penalties.

By grasping these nuances, individuals can make more informed financial decisions and better navigate the complexities of the tax system. If you have any more questions about how you can save money, please feel free to call or email at (615) 844-3398 or Jim.Maddux@raymondjames.com. 

Disclosure:

Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.