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