What exactly are tax write offs either for personal or business uses?

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What exactly are tax write offs either for personal or business uses?

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Anonymous 0 Comments

It’s just a deduction from your gross income, which lowers the amount of taxes you owe, whether it’s business or personal. For a simplified example, say you made $100,000 this year, and paid $10,000 in mortgage interest, you can deduct that 10k from the 100k and only pay taxes on that 90k left over. For businesses, it’s the same principle, just different rules on what is allowed.

Anonymous 0 Comments

Tax write offs are expenses that you can subtract from your taxable income – they affect how much of your income is taxed. These are expenses that lawmakers decided should not be taxed for a variety of different reasons – because they are viewed as necessities, are a type of spending lawmakers want to encourage, etc. If I earn $100 but spend $20 on tax deductible expenses, I only have to pay tax on $80. Many business deductions are a cost associated with doing business – like advertising costs, or money spent traveling to see clients. Common personal deductions are for mortgage interest or charitable contributions. People often confuse write offs with tax credits. A tax credit is an amount subtracted from the taxes you owe. Common examples are the electric car tax credit and the earned income credit. In my example, if I’m being taxed on $80 of income at a rate of 10%, I would owe $8 in taxes. If I’m eligible for a $2 tax credit, I only have to pay $6 in taxes.

Anonymous 0 Comments

My business Makes $10,000 in revenue and incurs $8,000 in expenses over the course of the year

I am taxed based on the $2,000 profit. However, let’s say I took a vacation to Hawaii for a “business conference” That cost me $1,000. I could say that the travel was for the conference and as such is a business expense. Therefore I can add that $1,000 to my annual expenses and now I am only making a “profit” of $1,000 and am taxed accordingly.

Anonymous 0 Comments

You can declare to the IRS that some of your income should not be taxed.

Basically, the government, instead of funding things, will say “if private people/businesses fund this thing, we won’t tax that money” as a way to incentivize people to do certain things. Buying a house, having children, installing renewable energy, etc.

I have a home mortgage, and tax law says I can deduct the money I spend on the interest on that mortgage.

So if I make $100k in a year, and I’ve paid $10k in interest on my mortgage, I will only get taxed on $90k of my income (this is really dumbed down, and there’s more complexity, but this is more or less what it is).

So it’s not “free money.” It’s more like a discount. If you’re being taxed at 30%, spending money on something deductible is like getting a 30% discount on it.

In a business, any expenses that you spend to do business (like office supplies, salary for employees) is also a tax write-off.

Anonymous 0 Comments

For a business, all expenses associated with running the business are deducted from revenue to determine taxable profits. Office rent and utilities, employee salaries and benefits, wholesale cost of goods sold, marketing spend, business travel, etc. People with their own businesses may try to buy items for personal or dual use and “write it off” as a business expense, which means buying it with business funds and deducting it from their profits vs. buying it with personal income that gets taxed first. Say a web designer wants a new MacBook for personal use, and sure they may occasionally do client work or communication on it, but it’s primarily their personal laptop. But they buy it with their company credit card, deduct the cost from their income, reducing taxes their company owes. And they don’t have to buy it with post-tax income.

Anonymous 0 Comments

Taxes, much like most of what the government does, are facets of its political will.

One of the easiest ways to get both people are corporations to DO (or not DO) what you want them to do, as a government, is to provide tax reductions for the behaviours that you want to see.

Things like donating to charities, and investing in business.

Of course also just like everything, these can/will be abused and don’t always end up doing the thing that the politicians dreamed of when they wrote the rules.

Tax write offs are just situations where money is spent, and allocated into one of these tax reductions which will allow them a portion (or sometimes all of it) to reduce what they end up owing at tax time. Effectively discounting or paying for that thing.

What you normally see in movies, would be business expenses, as we want business to invest in themselves, rather than cash out and move to an island. So we give tax incentives for business owners to spend money on the business. Savvy (or corrupt) owners, will blur the line between what is truthfully spent on the business, and what is spent on other things.

Anonymous 0 Comments

Your business has $500,000 in net profits, you owe $150,000 of that in taxes. Meaning, your take-home is $350,000.

You bought a delivery truck that you use to deliver the widgets your business makes that cost $50,000.

You ‘write off’ the truck as a business expense and the purchase price of the truck is deducted from the taxes you owe. Instead of owing $150,000 in taxes, you now owe $100,000. Your take-home is now $400,000 instead of $350,000.

But imagine you’re a start-up company that doesn’t have income yet (very common) and thus aren’t paying taxes yet. You can’t write-off any business expenses because you don’t have any taxes you can deduct from. Write-offs aren’t ‘free money.’ They just lower the amount of taxes you owe.