I spend a lot of time researching tax laws & attending seminars to maintain my knowledge & education, so I'd like to share my experience with my family & friends. If you have any tax questions or problems, give me a holler... [email protected]
Don't spend a dollar to save 25 cents.
Yeah, this sounds like common sense, but you'd be surprised how many people say to me, "Hey, so what if I lose money... it's a 'write off'." Don't get trapped into this way of thinking.
Just remember that wherever there's a "write off", you're spending money out of your own pocket. Does the tax savings outweigh the cash you've spent? Since the highest tax bracket is about 40%, the answer is never.
Spend the money if you really need or want the item you're buying. (not just to get a tax deduction)
Spend the money if you've got more income this year than you usually do. If your income is higher, you'll be at a higher tax bracket, and therefore, you'll get more benefit out of the beloved "write off".
***NOTE TO THE TYPICAL TAXPAYER: Most of these so-called "write offs" are not deductible unless you itemize your deductions. (using Schedule A) Most taxpayers use the Standard Deduction. You typically won't itemize unless you have a home mortgage or have major medical bills.
I want go to buy a boat, and the salesman says "If you buy this $20K cruiser on credit, you'll be able to write off the interest & property taxes."
The truth is... The $1,200 in interest & registration that I fork out during the year won't help me.
Why? Each year, I've got a choice of either taking the Standard Deduction of about $7,000, or I can add up all my qualified expenses (home mortgage interest, medical expenses, donations, etc.) and Itemize my deductions.
Here's my current situation...
House (interest & taxes) $4,500**
Donations (church) 200
*Medical Exp (Premiums on wife & kids) 1,000*
Current Total itemized deductions 5,700
Boat 1,200
Total itemized ded. w/ new boat $6,900
The $6,900 is not greater than the $7K standard deduction, so I get no tax benefit from the new boat purchase.
*You never get 100% of your medical expenses as a deduction.
**I don't live in California where my mortgage would be more like $180K. If I did have a big mortgage like that, I would have a hell of a lot more interest than $4,500, so I probably would already itemize.