I’ve read countless articles by the mainstream media that have used the phrase “tax write-off” insinuatingly, as if the subject shrewdly took advantage of a loophole. It can seem like any property, car or equipment that was expensed or money donated has allowed them to make the transaction at no cost. Since you have to pay taxes, might as well write everything off and not pay any taxes, right?
If they were being truthful, and that’s a big if in the mainstream media, the math in their minds would have looked something like this. I made $100K last year. At a tax rate of 30%, I would have had to pay 30K in taxes. But since I’ve read about tax write-offs, I renovated my home office instead, expensing 30K as a tax deduction. Now I don’t have to pay the 30K in taxes, but I’ve got 70K left and a comfortable office worth 30K. Amazing, right?!
That would indeed be amazing if that was case. In reality, if you expense 30K off 100K, your taxable income is reduced to 70K. So instead of paying 30K in taxes, you pay 30% of 70K, or 21K. You saved 7K in taxes. Minus your 30K office expense, you have 49K left. The amount you pay in taxes is less but naturally you will still be out of pocket for 100% of the expenses or donations.
When you come to think of it, how is it possible for a journalist to believe the first scenario if they’ve ever filed taxes before? Not to mention the government wouldn’t have any personal income or corporate taxes to collect.
The government wants to ensure people keep spending money and not hoard cash. A key policy to achieve this is a tax deduction, an incentive designed to stimulate the economy in exchange for lower taxes. So take advantage of it!
