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So in layman terms, what is exactly a tax write off?

well everything! But if you're confused or just want someone to talk to, I would say reach out to a CPA.
lterman
54
So in layman terms, what is exactly a tax write off? If i buy a laptop for lets say 830.00 total, only the taxes I paid on that is deducted or half of it???? I'm confused and I need someone to explain it to me. My husband told me we only get the taxes we paid back on our return. I know there are tax veterans out there. I've been saving receipts and mileage and using PP3 to help keep track, but is he right? How does it work?

Lyzette
 
Do you do your own taxes or do you see a professional? If you see a professional, they should be able to explain it to you. If you do your own, invest in tax software that covers small business. It will walk you through how to deduct equipment, such as your printer, laptop, telephone, etc. SAVE YOUR RECEIPTS!!! It will tell you exactly what to deduct.I'm sorry that I did not directly answer your question, but there is so much that you can and cannot claim and everyone's situation is different. The tax software works well for me as I just answer questions based upon my situation and was easy to follow.
 
Save your receipts and consult an accountant.
 
Definitely consult a tax specialist if you don't invest in the software. You can also call the IRS and they can explain the specific ins and outs to you. If you start deducting equipment you use in your business, you'll have to deal with depreciation over the years. If you ever decide to leave the business, you have to tell them how you disposed of the equipment. Basically, it can be a big headache if the deductions aren't worth the hassle of figuring them. I've done taxes for over 20 years and even owning my own home-based business, I didn't deduct some equipment or take the deduction for the home office because it was such a pain. Granted, I got back less money but it was worth the loss.

Another thing you may get into is the local (for me it's county) taxing authority trying to tax you on equipment you use in your business. There is alot involved when you start claiming business expenses but on the bright side you can claim a loss for the first few years. (Not every year or the IRS will consider it a hobby rather than a business.) If you spend more than you make, be sure your tax return shows that loss and you have receipts to back it up.

Sorry if I'm scaring you. It's not meant to be scary, just letting you know there's a lot to consider and to be sure you have someone who knows what he or she is doing. I actually started doing taxes after having Jackson-Hewitt do mine and messed me out of several hundred dollars by having me claim income I wasn't required to and not using deductions I was entitled to. Good luck!
 
Mileage is tax deductible, food can be if used for a show or practice up to 2x. Go to the IRS website, they have a book for small businesses you can order or download.

As said above, it is probably worth going to a tax person this year, then tackling it yourself next year. I do mine online, and the program is very helpful.

Robin
 
lterman said:
So in layman terms, what is exactly a tax write off? If i buy a laptop for lets say 830.00 total, only the taxes I paid on that is deducted or half of it???? I'm confused and I need someone to explain it to me. My husband told me we only get the taxes we paid back on our return. I know there are tax veterans out there. I've been saving receipts and mileage and using PP3 to help keep track, but is he right? How does it work?

Lyzette

Fixed assets (non-consumables) which generally are major purchases over $500 are depreciated over time. Under that amount is considered too small to be a fixed asset so is usually expensed within that year. Some CPAs will say $1000 or over too... It can get tricky but there are depreciation schedules and info to help you. http://www.irs.gov/businesses/small/article/0,,id=137026,00.html I've always had a CPA do our taxes since I've always had small business things to worry about... CPA fees are deductible the next year so it's a good investment that will pay you back in the long run. ;) I've honestly never depreciated a computer for any of our businesses... we tend to frankenstein them anyway.

Deductions can be tricky... there are rules when it comes to deducting things that are also used for personal use and such. Here's a GREAT website to help you sort things out. Small Business and Self-Employed One-Stop Resource

That link covers most of the basics for recording things and recordkeeping. Keep things like receipts... keep a record of your odometer readings... there are a lot of deductions once you start looking for them. :D Here's the skinny on deductions: http://www.irs.gov/businesses/small/article/0,,id=109807,00.html

There's a great small business book that's awesome for layfolks looking to not lose their minds with the technicality: http://www.amazon.com/dp/0917510259/?tag=pfamazon01-20

This book was awesome for me to really understand how to keep track of things. Between that book and my CPA I had no troubles, even way back with my ex's business when I kept things on green ledger paper. LOL.. Now I use Peachtree and absolutely love the ease of handing over a few reports to my CPA at the end of the year and him smiling cuz his job is easier too. There are a LOT of small business books out there... but the Small Time Operator book is just awesome for keeping it simple, not overloading you with big fancy terms and making sense of what can seem like utter craziness. LOL... the key is keeping things tidy and organized throughout the year. You can make a CPA VERY happy by handing over your reports in January or February before the rush sets in. LOL..

HTH!
 
Thanks, that sounds like a great book. I'll look into it. I HATE having to deal with taxes, but, meh...is life.
 
I don't know ANYONE who likes taxes... except maybe the folks that collect them? LOL... necessary evil and all that. The book is awesome. If you're not sure about it, look to see if your library has it or can borrow it from another library for you (through inter-library loan)... then if you like it, you can buy it (and it's a deduction!)...
 

1. What is a tax write off?

A tax write off is a deduction that reduces the amount of income that is subject to tax, resulting in a lower tax bill. It is a legitimate way to lower your taxable income and potentially save money on taxes.

2. How do tax write offs work?

Tax write offs work by reducing your taxable income, which in turn reduces the amount of taxes you owe. This is because write offs lower your taxable income, which is the amount of money you earn that is subject to taxes. The lower your taxable income, the less taxes you have to pay.

3. What expenses can be considered as tax write offs?

Expenses that can be considered as tax write offs include business expenses, medical expenses, charitable donations, and certain education expenses. These expenses must be necessary and directly related to your work or business in order to qualify as a tax write off.

4. Do tax write offs apply to everyone?

No, not all individuals are eligible for tax write offs. In general, tax write offs are only available to those who itemize their deductions instead of taking the standard deduction. Additionally, certain write offs may have specific eligibility requirements, such as income limits or specific circumstances.

5. Are tax write offs the same as tax credits?

No, tax write offs and tax credits are not the same. While both can reduce your tax bill, tax write offs reduce your taxable income while tax credits directly reduce the amount of taxes you owe. This means that tax credits have a greater impact on lowering your tax bill compared to tax write offs.

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