How Do Tax Write Offs WorK?

So you would like to give them extra cash to waste over summer and winter, interest-free, year and they pay you back the next? That’s what you’re doing by obtaining a refund. I believe you involve some fundamental misunderstandings of the way the tax system works. I’ll briefly describe several areas of it. First of all, “tax brackets”.

There are different levels of income that are taxed in different ways. If you’re in the “25% tax bracket” that will not mean all of your income is taxed at 25%, it only means the amount of income that falls within that bracket is taxed at that known level. When you make money there are portions of your income that are taxable and portions that are not taxable or tax-deferred (you don’t owe taxes on this amount when it is earned). The taxable amount is your Modified Adjusted Gross Income, it is your total income adjusted for non-taxable or tax-deferred income (401k contributions, medical health insurance etc).

Of the part of your fees that you borrowed from you are allowed to deduct (this is named a deduction) other experienced expenses from your earnings. This is money that you didn’t really make or the government has determined that it’s within a certain course of “money” that you should not need to pay fees on.

There is also something called a “standard deduction”, which is a set amount you might deduct from your MAGI. You are able to file taxes with itemized deductions (listing each and every qualified expense you are deducting from your MAGI) or you can file with a standard deduction. 12,500 IIRC). OTOH, unless you have many deductions, then it would be more beneficial so that you can take the typical deduction (what you’re seeing with your fees this year).

Is it worth it to save lots of receipts? Do you think your deductions shall surpass the standard deduction amount? 3750/child IIRC), business expenses, qualified medical expenses, contributions to charities etc are deductible. Tax Credits are a complete different animal. They don’t really lessen your income level, they are a full-value credit against the tax that you pay the federal government.

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How fees work generally for a wage earner (you get a paycheck every week from a company etc). You make money, among the countless items withheld from your paycheck are lots of federal taxes (cultural security, federal income tax etc). You are able to control how much cash is with-held from your salary for those fees. You could have a higher amount with-held, or a low amount.

29,000 as above (you purchased all those solar power panels right?). 34,000 in fees to the federal government. Wooohooo, it’s your birthday! 5,000 of your money back. 5,000 spread out among your paychecks as extra money in your pocket MONTHS back. 5,000 interest free for at least 6 months. Many frugal, or more disciplined people, have less overall withheld and get that money up-front instead, then come tax time, they will make an effort to “owe” a bit.