Common Tax Questions for Business Owners and Families

A Q&A with Dana Jensen

At Woodlands Tax, we work hard for every client to save you money. Tax season is here, and the financial environment can be complex and confusing. We answer some common questions that can help you save money this year!

1. How do income tax brackets work?

Many people think that if they’re in the 22% income tax bracket, all of their income is taxed at 22%. That’s not the case. The government actually uses a tiered tax system where the first part of your income is taxed at 10%. And then, the next layer of income is taxed at 12%. And then, the next layer is taxed at 22%. There are three more levels above 22%.

If you’re in the 22% income tax bracket, every next dollar that you earn gets taxed at 22%. If you’re in the 35% bracket, every next dollar that you make gets taxed at 35%.  As your tax bracket increases, having a tax strategy becomes more important than ever.

2. What are some tax breaks that people might not know about?

There are so many!  An easy one that often gets overlooked is your own 401k contribution. You can put up to $23,000 this year in your 401k, and it’s all deductible from your W-2 income. This money that you put in your savings defers income to be taxed to a later date.  Or, when you make a Roth contribution, you pay the taxes now and let the money grow tax-free for as long as you have it. 


Traditional examples of a deduction would be your property taxes, your medical expenses, or your charitable contributions. All of these can be itemized and oftentimes result in significant savings depending on your circumstances.  

3. What’s the difference between tax deductions and tax credits?

Tax deductions reduce your taxable income. In other words, the dollar amount on which your tax is calculated. So for example, let’s say you have $50,000 of income and you have $10,000 of deductions. That leaves $40,000 on which your tax would be calculated. 

Credits work differently from deductions. Looking at $40,000 of income, you may have $4,000 in taxes.  You may also have a $2,000 tax credit, which reduces the amount you must pay. So, that $4,000 bill would be reduced to $2,000 by the credit.

4. What are some tax credits that people might not know about?

There’s a lot of them! Certainly, the Earned Income Tax Credit is one of them. The residential home energy credit, which Congress put into place at the beginning of 2023, effectively offsets the entire cost of a home energy audit. Most energy-efficient improvements you make on your house are eligible under the credit, subject to limitations. The credit for energy-efficient vehicles – not just electric vehicles (EVs), but hybrids as well – offers significant cash when buying a qualifying vehicle. Of course, there are limitations around that too. That’s big money that can save you on the purchase of an energy-efficient vehicle.

5. What are some life events that might change my tax situation?

Marriage and divorce are common reasons your tax bracket may change. Having children can make you eligible for certain tax credits. If you’re moving to the U.S., even moving to The Woodlands from out of state, you face significant income tax implications. The loss of a loved one can create unexpected tax consequences as well, sometimes in the form of an inheritance or trust.

6. What is a smart tax move for 2024?

One of the most important tax moves that you can make is understanding your tax bracket and how contributing to your 401K or IRA, either on a traditional or a Roth basis, can create not only tax savings, but tax deferrals, and, in some cases, create tax-free income in the future.

It’s probably one of the most important tax moves for anyone to consider.

7. How does the tax filing process differ for an independent contractor or self-employed individual?

For our clients who are independent contractors or self-employed, they often don’t understand the implications of a self-employment tax. When you’re a W-2 wage earner, your employer pays half of your social security tax and you pay the other right out of your paycheck. Those who are self-employed pay both halves plus their income tax. They’re paying it for themselves, and it’s a flat 15.3% blanket rate for everyone.

Oftentimes, those who are self-employed are not setting enough money aside to cover the cost of both their income tax and their self-employment tax. It’s better to overpay your estimates than to be underpaid. The consequences of underpayment penalties and interest are much higher than it has been in the past.

8. Who would benefit from Woodlands Tax’s services?

We try to help everyone that we can! We’re here to help you be compliant with the tax code, and we also offer advisory services as well.  We don’t charge extra to be your advisor. It’s our job to try to save you money. We do this when we can sit down with you and recommend a few tax strategies for the year ahead. When the end of the year comes around, our tax strategies hopefully reduce your tax burden. That’s our goal. 

You can reach out to us via email or through our website. You can call our office number at 281-214-2255, or you can connect with us on social media. We’re Woodlands Tax: your advisors, your accountants, and your advocates.