Yeah, I've heard about tax write off but have no idea what it means and how it works. At least I've got an idea now. I've learned my lesson and will prepare my income tax as early as I can.
I have been getting several questions lately about tax write offs. In my inbox this morning I had a great question that made me take things back a few steps. It was
“I have been hearing all about tax write offs lately and I think I am missing something. I ended up paying a lot into my taxes this last year, mostly because I just started a new job as an engineer last year so I made a lot more money. How can I save more on my taxes and what exactly is a tax write off?”
This is a great question and I figured I would just create a post to answer it.
A tax write off can be a difficult parts of filing taxes for the average person because many do not understand exactly what it is and why they should take advantage of it. In definition, a tax write off equates to a deduction in your gross income that comes from an expense that you incurred. So the end result is the tax write off will reduce your total income, thus lowering your total tax liability.
So basically you pay less to the IRS and you get a bigger tax return.
Sometimes you may here the term tax deduction used in place of the words tax write off, these are the same thing.
Tax write offs are more of an incentive than anything put in by the federal government to encourage the action. The average major company regularly donates large sums of money to charities and different organizations just for the benefit of a tax write off, there might possible be some good nature in there as well. The government also puts in place numerous opportunities for businesses and individuals like you and me to lessen the amount we have to pay in taxes in the form of write offs.
These tax deductions are not only for the wealthy, they are for everyone. It is just that the wealthy can afford to pay for a lot more tax advice to help them save more than the average taxpayer; they also have a bigger incentive to do this. The process of tax write offs are there for every taxpayer including those in lower and middle class. There are hundreds of tax deductions in which you may be entitled to.
In order to find out exactly what tax deductions are available for you, I strongly recommended that you consult your attorney or any tax professional. You cannot just take your friends word on it, because a legitimate tax write off for one person may not work for you. Although talking with friends, colleagues, and others that may be in a similar place as you about taxes in general can be great. I have learned so much from just talking to people about taxes that I am then able to take and better to talk to my CPA about.
If you have a quick question on tax if a deduction would work for you or not you can always call a local CPA, most of the time for free. But if you are like the reader that I noted above and you are starting to pay a lot more in taxes it is probable time for you to sit down and really go over things with a CPA. This may cost you a bit, but I am sure you will end up saving more than you pay in the end. Some CPA’s will be more than happy to give you free advice in hopes of being able to then help you more with your taxes. You do not always need a CPA, but they do provide good advice.
The start of a year is the best time to familiarize yourself with deductions available to you. If you wait until the end of the year or worse yet until a few weeks before the tax deadline you will be most likely out of luck. If I tried talking to my account about in depth tax deductions at the end of March or beginning of April, I would probable hear back from her sometime in May.
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About the Author: KC Beavers is a semi-retired entrepreneur. The subject of personal finance has always fascinated him. In an effort to not bore those around him with all his love of personal finance as much he has come here to bore all of you instead. Be sure to follow KC on Twitter or Google+.
What a wonderful blog. I like reading your article today and would be interested in coming back for others.
Taxes and tax deductions can be quite complicated. Turbotax program is pretty good at navigating you through your tax preparation, but it is the best to consult an accountant where you can completely eliminate all the guessing work. But if you do taxes for specific job/business year after year, you can learn what kind of deductions you can take, then you can work on your taxes more independently.