But thats not exactly true.
So how much do you actually save when you write something off?
We consulted some tax experts for their (ahem) two cents.
Weve all seen the episode, and its not just big corporations writing things off.
Individuals are entitled to write-offs, too.
(Although so many are on the chopping block thanks tothis new tax bill.)
But writing stuff off might not mean what you think it means.
As the IRSexplains, tax credits give you a dollar-for dollar reduction of your income tax liability.
This means that a $1,000 tax credit saves you $1,000 in taxes, they write.
Tax deductions, on the other hand, are deductions from your taxable income.
This saves you whatever your tax rate is multiplied by the cost of the write off.
If you earned $50,000 and deducted a $100 expense, you would pay taxes on $49,900.
Youll save on the taxes you would have had to pay on that hundred bucks, Durrenberger explains.
This is why your tax bracket matters.
Our tax system is a tiered one, meaning you pay a percentage on each bracket of income.
Here are the tax brackets for 2017:
Lets say you earned $50,000 for the year.
That doesnt mean you pay a tax rate of 25%.
You only pay that amount for anything over $37,950.
Your first $9,325 would actually only be taxed at 10%.
And youll need this number if you want to know how much your deductions will actually save you.
Before we do, lets clear something up.
Not only is a deductionnotdollar-for-dollar savings, you also cant fully deduct every expense.
If you write off a $50 business meal, you would save about 6 bucks.
($50/2 x 0.25).
This is sort of a general rule, though.
It can get tricky because of those brackets.
That gives you an exact idea of how much youll actually save.
Just dont expect your write-offs to pay for themselves.
