tax write off

[deronsizemore]

I understand how tax write off's work, but how do you go about figuring up how much you actually got back on your taxes because of write offs?

I know that when you write something off you are creating less taxible income, like if you make 50,000 a year with $100 in write offs, that makes your taxible income 49,900.

With me, take last year for instance. I did some consulting work and made a little money on the side. We'll just make it a round about number and say that I wrote off $1000 worth of stuff. How do I go about figuring up how much extra I actually got back on my tax return based on the $1000 I wrote off?

[Chris]

it is whatever your tax rate is. If you hadn't written that $1000 off then it would have been taxed at your tax rate, so if it were say 30% then you saved $300 in taxes.

[deronsizemore]

Ok, I'm still a little confused. You say that if I had no written the 1k off, then it would have been taxed at my normal rate. If it were things such as books, computer desk, internet bill, computer, etc...how would these things have been taxed at my tax rate? It wasn't income so there really isn't any way to tax these things like you do on income. I mean there is the .06% sales tax, but I don't think that is what you're talking about is it?

This is a quote from WikiPedia:


In income tax calculation, a write-off is the itemized deduction of an item's value from one's taxable income. Thus if a person has a taxable income of $50,000 per year, a $100 telephone for business use would lower the taxable income to $49,900. If that person is in a 25% tax bracket, the tax due would be lowered from $12,500 to $12,475. Thus the net cost of the telephone is $75 instead of $100.

I understand what it's saying, but having trouble seeing the correlation between what it's saying and how to figure how much of a return the person would actually get back on their tax return based on what they wrote off. I know alot of people that just think "hey, I wrote off 1000 worth of stuff, so I'm going to get 1000 back on my return. In the case from wikipedia, would the person just get back $25 dollars as the net cost of the phone was 75 and they paid 100, thus the difference of 25 bucks?

[Chris]

You're thinking too much of a "return"

A return is simply what you get back for overpaying throughout the year, ideally your return will always be 0 because you paid the exact amount you owed, if you paid more than you owe then you let the government collect interest on that money instead of you. Having a high return isn't a good thing, it just means you don't manage your finances well (in most circumstances).

Just worry about total taxes owed.

[deronsizemore]

You're thinking too much of a "return"

A return is simply what you get back for overpaying throughout the year, ideally your return will always be 0 because you paid the exact amount you owed, if you paid more than you owe then you let the government collect interest on that money instead of you. Having a high return isn't a good thing, it just means you don't manage your finances well (in most circumstances).

Just worry about total taxes owed.


Yeah I realize about the return. In a perfect world I would get nothing back, but it seems that I always get a return. I've filled out my tax forms the best of my knowledge and still seem to pay more than I should.

Anyway, the reason I'm thinking in terms of return, is that my wife and I were discussing our return that we got last year and she said it was more than it should have been because of the things that I wrote off...I told her that it really wasn't much more than it would have been if I had not wrote up the stuff because it doesn't work like that where you get all the money back for the items you write off.

So that's why I'm trying to figure out in terms of return. I'd like to see how much in dollar amount my write offs equaled last year toward the return we got.

[Todd W]

You are making it to complicated.

If you write-off a $100 phone and you are taxed 25% you just lowered your taxable income by $100... thus if you you OVERPAID you would be getting $25 back.
( Another way: Lowering your taxable income by $100 saves you from paying 25% on that $100 thus saving you $25)
That's it - but you can't look at it like that really because your "JOB" takes out taxes based on your W4 (I believe that's the form) options.

[deronsizemore]

Yes, I tend to make things much hard than they really are....and I'm still confused.

So if I write off $1000 dollars worth of stuff, and I'm in the 25% tax bracket, essentially I'm going to get back 250 bucks along with my return?

I don't know if I'm getting confused because my job takes out taxes and then I normally get a return sometime the first of the year and then this concept of writing off as it is on wikipedia is speaking from a standpoint of making 50,000 a year and then after the 100 dollar phone they only owe 12,475 instead of 12,500. I mean that makes sense to me. It's from the standpoint of someone that doesn't have a regular job that takes taxes out of their check and they owe the IRS money at tax time, so the write off's lower how much they owe by whatever tax bracket percentile they are in.

But from my standpoint where I'm already paying more than I should because my job is taking more than nessessary out, I get a return, so when I write off something that's money I get back with my return instead of just less that I owe (if that makes sense?)

[Todd W]

Yes, I tend to make things much hard than they really are....and I'm still confused.

So if I write off $1000 dollars worth of stuff, and I'm in the 25% tax bracket, essentially I'm going to get back 250 bucks along with my return?

I don't know if I'm getting confused because my job takes out taxes and then I normally get a return sometime the first of the year and then this concept of writing off as it is on wikipedia is speaking from a standpoint of making 50,000 a year and then after the 100 dollar phone they only owe 12,475 instead of 12,500. I mean that makes sense to me. It's from the standpoint of someone that doesn't have a regular job that takes taxes out of their check and they owe the IRS money at tax time, so the write off's lower how much they owe by whatever tax bracket percentile they are in.

But from my standpoint where I'm already paying more than I should because my job is taking more than nessessary out, I get a return, so when I write off something that's money I get back with my return instead of just less that I owe (if that makes sense?)

Couple things.

1. I am not a CPA and don't offer legal advice just my opinion.

2. Being self employed or running a business or both... you should pay taxes during the year at your set schedule depending on how much you make. If you end up oweing more than 1,000 at the end of the year you will have to pay a fee/penalty on anything abve the 1k you owe.

3. If your work takes out more than you need ALREADY and you are getting money back you will get MORE back if you write-off things when doing your taxes because you are LOWERING your taxable income. So you are not getting free money you are just getting money you paid during the year that is not needed beacuse you've changed your total taxable amount.

So if you were taxed on 50,000 and owed 5,000 and had already paid 8,000 you were getting back 3,000. Well now if you wrote-off another $5,000 because you work from home for your company (were not changing your total income) you are lowering your taxable income by 5k to now 45,000. So now you are taxed on 45k and lets say you are in 25% bracket so 25% of 5k = 1250 so now you are getting back $4250. (The 5,000 and 8,000 were just round #s to make it easy the 1250 is 25% of 5,000). If you hadn't over paid you wouldn't be getting any more money back.. in fact if you were the opposite and you OWED money and wrote-off more you would simply owe less. You will never "get free money" from the gov. from taxes. YOu either OWE them, owe nothing, OR get YOUR MONEY back.

It's not that easy because you said you MADE extra money. So now you have to take the 50,000 you made at work add-on to it what you made on the side and then do your write-offs.

This is just the SIMPLIEID version of it. Some things have higher/lower decutions and some things are not deducted fully, etc, etc. There are A LOT of different ways to do deductions too.

I highly suggest an accountant or tax person who knows what they are doing and not someone from H&R block. You most likely will get LOTS more money back and deduct things you didn't know you could deduct.

[Sagewing]

Just think of them as seperate things:

1) You are taxed on your taxable income, which is gross income minus any deductions. The taxable income is compared to the tax table to determine the amount you owe. It has nothing to do with whether you get a refund or not.

2) Regardless of the amount of tax you owe, you file a return at the end of the year. If your employer took too much money out of your check, you will get a refund. If not, you will owe. Many people don't realize that they can control exactly how much is taken from each paycheck, so they let their employer take out a bit too much. The IRS likes this, because they hold your money for a while. This isn't' good for you though, because you could have just had less taken from your check.

So, there's the determination of your taxable income and tax owed, and then there is the reckoning with the IRS where you 'settle up'. They work independently of each other.


You should also know that you are using the word 'return' (the package of information that you provide to the IRS each year) where you seem to mean 'refund'.

It's almost for sure that you aren't doing your taxes well, since you are asking such basic questions. Why not take the last 3 years of your returns to CPA and see what they could do for you? A good CPA can get you back more than they will charge, sometimes.

[deronsizemore]

Couple things.

1. I am not a CPA and don't offer legal advice just my opinion.

2. Being self employed or running a business or both... you should pay taxes during the year at your set schedule depending on how much you make. If you end up oweing more than 1,000 at the end of the year you will have to pay a fee/penalty on anything abve the 1k you owe.

3. If your work takes out more than you need ALREADY and you are getting money back you will get MORE back if you write-off things when doing your taxes because you are LOWERING your taxable income. So you are not getting free money you are just getting money you paid during the year that is not needed beacuse you've changed your total taxable amount.

So if you were taxed on 50,000 and owed 5,000 and had already paid 8,000 you were getting back 3,000. Well now if you wrote-off another $5,000 because you work from home for your company (were not changing your total income) you are lowering your taxable income by 5k to now 45,000. So now you are taxed on 45k and lets say you are in 25% bracket so 25% of 5k = 1250 so now you are getting back $4250. (The 5,000 and 8,000 were just round #s to make it easy the 1250 is 25% of 5,000). If you hadn't over paid you wouldn't be getting any more money back.. in fact if you were the opposite and you OWED money and wrote-off more you would simply owe less. You will never "get free money" from the gov. from taxes. YOu either OWE them, owe nothing, OR get YOUR MONEY back.

It's not that easy because you said you MADE extra money. So now you have to take the 50,000 you made at work add-on to it what you made on the side and then do your write-offs.

This is just the SIMPLIEID version of it. Some things have higher/lower decutions and some things are not deducted fully, etc, etc. There are A LOT of different ways to do deductions too.

I highly suggest an accountant or tax person who knows what they are doing and not someone from H&R block. You most likely will get LOTS more money back and deduct things you didn't know you could deduct.


Ok, I got ya now. Thanks for being patient with my ignorance.

So am I understanding it right that the higher the tax bracket that you are in based on your income, the more of a break you get writing off things?

Since in the example we're using 50,000 income, with a phone that was 100 bucks in the 25% tax bracket and that lowing how much you owe by 25 dollars...if you turn that around any say someone is making 100,000 a year and writes off a 100 dollar phone and they are in say the 40% tax bracket as they are making more money, then instead of owing 25 dollars less for having written off the phone, they would now owe 40$ less?


It's almost for sure that you aren't doing your taxes well, since you are asking such basic questions. Why not take the last 3 years of your returns to CPA and see what they could do for you? A good CPA can get you back more than they will charge, sometimes.

Yeah, I don't understand a lot things on the financial end (maybe should have paid more attention in finance class?). All that I've ever done is fill out my w-4 for work, give all the nessessary forms to my parents and let their CPA do everything for me, so I've never really had an interest to learn how it all works or anything like that. I just fill out the form, give it to them and then get my refund at the first of the year. Never realized until recently how that refund even worked and that I was basically losing out on interest that I could have earned by not having that extra money on my checks.

Last year we had my wife's mother's CPA do our taxes for us and she got us some extra money back with our refund because after finding out that I had what was considered a "home business" set up, she told us all kinds of things that we were allowed to write off, so I did and that's really what started this whole conversation in the first place, wondering exactly how much I extra I got back on my refund because of the tax write offs.

[Todd W]

Yes.

If you have a home business you can write-off a lot. BUt you need to be ADDING profit(not hard - writeoff 90% lol) within a 5yr(I believe) time frame or you can't write it off anymore.

Some ideas for home biz write-offs.
-Internet
-% of mortgage/rent
-% of power/gas
-all comptuer related items ;) to business ;) ;)
-cameras, routers, etc because you use them for your websites right? (I know I do really.. I do for product pictures :) )
-chairs, desks, other office furniture
-etc etc etc