1. What is the difference between a tax deduction and a tax credit?

A tax deduction reduces the amount of your income that is subject to tax, whereas a tax credit reduces your actual tax liability dollar-for-dollar.

• The impact: If you are in the 22% tax bracket, a $1,000 deduction saves you $220 in taxes, but a $1,000 credit saves you exactly $1,000.

• Learn more via the IRS Tax Credits and Deductions Overview.

2. How long should I keep my tax returns and supporting records?

The IRS generally recommends keeping your tax returns and supporting documents (W-2s, 1099s, and receipts) for three years from the date you filed.

• Exceptions: Keep records for 6 years if you underreported income by more than 25%, and keep them indefinitely if you file a fraudulent return or don't file at all.

• Review full guidance at the IRS Period of Limitations Guide.

3. Are my side-hustle or freelance earnings subject to taxes?

Yes, any net earnings from self-employment or side jobs of $400 or more must be reported to the IRS and are subject to self-employment tax.

• The requirement: You will owe a 15.3% tax to cover Social Security and Medicare, in addition to regular income tax on those profits.

4. What are the EIC, CTC, and ACTC, and how do they lower my tax bill?

These are 3 major federal tax credits designed to provide financial relief to working individuals and parents by directly reducing the amount of tax you owe.

• Earned Income Credit (EIC): A tax credit for low-to-moderate-income workers. If the credit amount is greater than the tax you owe, you receive the difference back as a refund.

• Child Tax Credit (CTC): A credit available to taxpayers with qualifying dependent children. It reduces your overall tax liability dollar-for-dollar based on the number of children you claim.

• Additional Child Tax Credit (ACTC): This is the refundable portion of the Child Tax Credit. If your CTC amount reduces your tax liability all the way down to zero, the ACTC allows you to receive the remaining leftover credit balance as a cash refund.

1. What is the main difference between term and permanent life insurance?

Term life insurance provides coverage for a specific period (e.g., 10, 20, or 30 years) and pays out only if you pass away during that timeframe. Permanent life insurance lasts your entire lifetime and includes a "cash value" component that can grow over time and be borrowed against.

• The trade-off: Term insurance is significantly cheaper and strictly a safety net, while permanent insurance is more expensive but includes an investment feature.

2. Are my monthly life insurance premium payments tax-deductible?

No, individuals cannot deduct life insurance premiums on their federal tax returns because the IRS considers them personal expenses.

• Exceptions: If you are a business owner providing group-term life insurance to employees as a benefit, those premiums may be deductible under specific corporate structures.

3. Can I withdraw money or borrow against my life insurance policy?

You can only withdraw money or take out a loan if you have a permanent or whole life policy that has accumulated "cash value." Term life policies do not have this feature.

• The caution: Loans are generally tax-free, but any unpaid loan balance will be subtracted from the final death benefit payout if you pass away before repaying it.

4. Are life insurance proceeds or benefits considered taxable income?

• Life insurance proceeds you receive as a beneficiary due to the death of the insured person, aren't includable in gross income and you don't have to report them.

1. What do premium, deductible, copay, and out-of-pocket maximum mean?

These four terms outline the basic financial framework of your health plan:

• Premium: The fixed amount you pay every month to keep your health coverage active.

• Deductible: The out-of-pocket amount you must pay for healthcare services before insurance begins splitting the costs.

• Copay / Coinsurance: The fixed dollar amount or percentage you pay for a medical service or prescription after your deductible is met.

• Out-of-Pocket Maximum: The absolute cap on what you will pay in a single year; once reached, insurance pays 100% of covered services.

2. What is the difference between an HSA and an FSA?

While both use pre-tax dollars for medical costs, an HSA is individually owned, rolls over indefinitely, and requires an HDHP. A Flexible Spending Account (FSA) is owned by your job, and its funds are usually "use-it-or-lose-it" by year-end.

• Contribution differences: For the current year, the single FSA cap is $3,400, while a single HSA cap is higher at $4,400.

3. Can I stay on my parents' health insurance plan after I graduate college?

Yes, under the Affordable Care Act, young adults can remain on a parent's health insurance plan until they turn 26 years old.

• Flexibility: You qualify for this extension even if you graduate, move out, marry, or secure a job that offers its own separate health benefit.