eli5: what are tax write offs?

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im autistic and have reading disabilities so i dont understand anything google says 🥲

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Anonymous 0 Comments

Tax write-offs are like little presents that the government gives you when you pay your taxes. When you pay your taxes, the government takes some of your money to use for important things like building roads, schools, and hospitals. But, the government also wants to encourage people to do things that are good for the economy, like starting a business, giving money to charity, or buying a house.

So, the government lets you keep some of your money by giving you tax write-offs for doing these things. It’s like a reward for doing something that helps the economy. When you get a tax write-off, it means you can lower the amount of money you have to pay in taxes.

For example, if you start a business and spend money on things like office supplies or computers, you can write off some of those expenses on your taxes. This means you can lower the amount of money you have to pay in taxes because you spent money on things that help your business.

Tax write-offs are a way to encourage people to do good things for the economy and get rewarded for it by paying less in taxes.

Anonymous 0 Comments

Tax write-offs are like little presents that the government gives you when you pay your taxes. When you pay your taxes, the government takes some of your money to use for important things like building roads, schools, and hospitals. But, the government also wants to encourage people to do things that are good for the economy, like starting a business, giving money to charity, or buying a house.

So, the government lets you keep some of your money by giving you tax write-offs for doing these things. It’s like a reward for doing something that helps the economy. When you get a tax write-off, it means you can lower the amount of money you have to pay in taxes.

For example, if you start a business and spend money on things like office supplies or computers, you can write off some of those expenses on your taxes. This means you can lower the amount of money you have to pay in taxes because you spent money on things that help your business.

Tax write-offs are a way to encourage people to do good things for the economy and get rewarded for it by paying less in taxes.

Anonymous 0 Comments

Tax write-offs are like little presents that the government gives you when you pay your taxes. When you pay your taxes, the government takes some of your money to use for important things like building roads, schools, and hospitals. But, the government also wants to encourage people to do things that are good for the economy, like starting a business, giving money to charity, or buying a house.

So, the government lets you keep some of your money by giving you tax write-offs for doing these things. It’s like a reward for doing something that helps the economy. When you get a tax write-off, it means you can lower the amount of money you have to pay in taxes.

For example, if you start a business and spend money on things like office supplies or computers, you can write off some of those expenses on your taxes. This means you can lower the amount of money you have to pay in taxes because you spent money on things that help your business.

Tax write-offs are a way to encourage people to do good things for the economy and get rewarded for it by paying less in taxes.

Anonymous 0 Comments

Don’t feel bad. Even many people who use the term don’t really understand.

There are certain things the government wants to encourage. Donations to charity, saving for retirement, buying a home, etc. So what they’ll do is they’ll essentially agree to not tax some or all of the amount of money spent on these things. These are known as Tax Credits, Tax Deductions, or sometimes known as “write offs.”

But they don’t KNOW how much money you’re going to spend on them until you do it. *This is why we have to file taxes every year*. We have to settle up the actual amounts. So if you maxed your Traditional IRA, you put that in your tax return and the government says, “Oh, I need to give you your $1,320 back that I withheld assuming you’d be paying taxes on this $6,000.” That’s what your tax return is.

One common mistake people make, is a tax write off is basically never PROFITABLE. People have this delusion that you can do things like, spending $10,000 and saving $50,000 in the process. That’s basically *never* the case. You might spend $10,000 and have $3,600 given back, but you still spent $6,400. It’s never PROFITABLE.

But that’s pretty much it at it’s most basic. A “write-off” is taking an action that’s going to be used to reduce your tax liability.

Anonymous 0 Comments

Don’t feel bad. Even many people who use the term don’t really understand.

There are certain things the government wants to encourage. Donations to charity, saving for retirement, buying a home, etc. So what they’ll do is they’ll essentially agree to not tax some or all of the amount of money spent on these things. These are known as Tax Credits, Tax Deductions, or sometimes known as “write offs.”

But they don’t KNOW how much money you’re going to spend on them until you do it. *This is why we have to file taxes every year*. We have to settle up the actual amounts. So if you maxed your Traditional IRA, you put that in your tax return and the government says, “Oh, I need to give you your $1,320 back that I withheld assuming you’d be paying taxes on this $6,000.” That’s what your tax return is.

One common mistake people make, is a tax write off is basically never PROFITABLE. People have this delusion that you can do things like, spending $10,000 and saving $50,000 in the process. That’s basically *never* the case. You might spend $10,000 and have $3,600 given back, but you still spent $6,400. It’s never PROFITABLE.

But that’s pretty much it at it’s most basic. A “write-off” is taking an action that’s going to be used to reduce your tax liability.

Anonymous 0 Comments

In my opinion it’s easiest to explain in terms of business.

Generally if you get money or things of value, it is considered income (with one big exception being gifts, but that’s a discussion for another time). If you mow the lawn and someone gives you $10 for it, you should pay income tax on the $10 – you give a few dollars of it to the government.

In business, however, you often have to spend money to make money. If you spend $1000 on widgets and then sell the widgets for $1010, you’re only left $10 richer than before, so the government says ok, $10 is your income and you give a few dollars of it to the government similar to mowing the lawn.

You could think of that as +1010-1000=10. That -1000 part is called a tax “deduction” and is what most people mean when they say tax write-off. If you look at what happens with and without deduction… Say your marginal tax rate is 50% (half of income). Without the deduction tax on 1010 would be 505, with the deduction it would be 5, so the tax write off of $1000 “saved” you $500, or 50% of the write off. If you do similar math for 30%, it would be 303 vs 3 or $300 saved, again 30% of the deduction.

**So in short a deduction of $x saves you tax money in the amount of $x times your marginal tax rate, and most of the time people saying tax write off are talking about deductions.**

Controversial things would be when it isn’t clear that the deduction is really for cost of doing business (if you spend $1 on widgets and sell them for $1010, and then spend $1000 on a brand new plasma TV you use only in your home for watching shows unrelated to your widgets, people would argue that you don’t deserve that tax write off), or when the government gives deductions like this for personal income that they disagree with (if a rich person gives $10 million to a charity owned by a friend who will eventually return the favor off the books and have 50% marginal tax rates, they could save $5 million basically for free).

Anonymous 0 Comments

In my opinion it’s easiest to explain in terms of business.

Generally if you get money or things of value, it is considered income (with one big exception being gifts, but that’s a discussion for another time). If you mow the lawn and someone gives you $10 for it, you should pay income tax on the $10 – you give a few dollars of it to the government.

In business, however, you often have to spend money to make money. If you spend $1000 on widgets and then sell the widgets for $1010, you’re only left $10 richer than before, so the government says ok, $10 is your income and you give a few dollars of it to the government similar to mowing the lawn.

You could think of that as +1010-1000=10. That -1000 part is called a tax “deduction” and is what most people mean when they say tax write-off. If you look at what happens with and without deduction… Say your marginal tax rate is 50% (half of income). Without the deduction tax on 1010 would be 505, with the deduction it would be 5, so the tax write off of $1000 “saved” you $500, or 50% of the write off. If you do similar math for 30%, it would be 303 vs 3 or $300 saved, again 30% of the deduction.

**So in short a deduction of $x saves you tax money in the amount of $x times your marginal tax rate, and most of the time people saying tax write off are talking about deductions.**

Controversial things would be when it isn’t clear that the deduction is really for cost of doing business (if you spend $1 on widgets and sell them for $1010, and then spend $1000 on a brand new plasma TV you use only in your home for watching shows unrelated to your widgets, people would argue that you don’t deserve that tax write off), or when the government gives deductions like this for personal income that they disagree with (if a rich person gives $10 million to a charity owned by a friend who will eventually return the favor off the books and have 50% marginal tax rates, they could save $5 million basically for free).

Anonymous 0 Comments

You set up a lemonade store.

You buy $40 of lemons. You sell $100 of lemonade.

You got an income of $100. However, you can get a tax-write off for the lemons – you had to buy the lemons in order to make money. You write off $40 of income from the lemons – so you only pay tax on $60.

Anonymous 0 Comments

No argument with the other answers.

The way I learned it was: you pay taxes on profits. If you spend money on new equipment or marketing, those expenditures reduce profits, so those expenditures are much cheaper than the price paid.

If you have a 10% tax rate and you have an expense of $100, the you reduce your profits by $100, and one of the outcomes of this is you pay $10 less tax (all other things being equal or out of consideration).

So you can look at it like the expenditure was really $90, or you were able to keep $10 in profit.

Anonymous 0 Comments

No argument with the other answers.

The way I learned it was: you pay taxes on profits. If you spend money on new equipment or marketing, those expenditures reduce profits, so those expenditures are much cheaper than the price paid.

If you have a 10% tax rate and you have an expense of $100, the you reduce your profits by $100, and one of the outcomes of this is you pay $10 less tax (all other things being equal or out of consideration).

So you can look at it like the expenditure was really $90, or you were able to keep $10 in profit.