That is basically why the Standard Deduction exists.
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Homeowners can write off the interest paid towards their mortgage. Renters can't write off shit.
If we have enough deductions to justify itemizing instead of taking the standard deduction.
I haven't had a need to itemize in several years.
That's not nearly as much of a perk as people make it out to be. It's good for a couple of years when you're mostly paying interest, but it's really not much.
Remember, a deduction is just removing the expense from your taxable income. It's not like we get that back from taxes...that'd be a credit.
So if I pay $5000 in interest over the course of the year, im not getting $5k back on my taxes. We just pretend my gross income is $5k less. And most the time, the standard deduction ends up being more anyway.
Most W2 workers take standard deduction. You aren't missing anything.
My primary income is W2, but I have a 1099 side gig (teaching scuba and underwater photography at a university) that usually results in me itemizing mostly because my gear is stupid expensive and I rarely make an actual profit. The write-offs are enough to let me justify spending the money on the gear to help me break even while teaching.
I do multi-year write-offs on the big-ticket items, because one underwater camera rig (camera, housing, strobes, wet-lenses, etc) costs what I make teaching underwater photography across 4-6 semesters.
Aren't business expenses normally filed under schedule C if youre a sole owner?
I think the last time I itemized was when I was doing some 1099 work, plus changed jobs, changed employment state, sold a house in one state and bought one in another.
It was a complicated tax year.
Itemizing stopped being beneficial for me when they capped the mortgage interest deduction at $10K.
It’s by design, and in theory meant to encourage ownership to put personal stakes in the region. In practice, of course, homes are laughably unaffordable and it’s a free bonus for the rich.
I was surprised to see this stat: homeownership in the US is in the mid to high 60%s range. Meaning we have twice as many owner-occupied homes as rented homes.
Now everyone please proceed to downvote this sourced fact, offered without even any commentary.
I've tried writing everything off, but it's always been less than the standard deduction.
Where are you from?
I can file a lot of the bills for my flat (e.g. things like repairs and facility service) at the tax office, as well as stuff like child care and most of my car's mileage (or my bike's mileage :-) ), to be exempted from income taxing at least (there are still other taxes).
Rent money would be fully taxed, though, as well as other cost of living like food and clothing.
Country is Germany.
That's how it works in many countries.
Business pays tax on profits (revenue - expenses). Salary has smaller tax for business compared to pure profits, employees don't pay it because it's not profit. So businesses have incentives to keep human employees instead of keeping all the profits for themselves.
And that applies to all businesses. So if you, for example, bought a carrot for $10, tax is included, you don't pay tax on it.
- The distributor bought it for $6, spent $1, pays tax on their profit ($3),
- farmer grew it, used fertilizer, seeds, labor, etc., pays tax on profit (maybe $2),
- the fertilizer company again pays tax on their profit, and so on
In US you pay tax on every transaction. You get salary, you pay tax, you buy a thing, you pay tax, you eat something, again tax. This makes you more aware government is taking money, compared to the first scenario. But it also gives government ways to make complicated rules and give different tax benefits to different people. In the first scenario, government help goes to everyone whether they have a job or not. In this case you only get Tax cuts if you already make money.
This is the first time I hear that there are countries that have company profit tax more than employee tax. What countries are those?
Interesting, I thought that'd be a normal thing because it makes so much sense.
I didn't go deeper into it, but I could see several examples in just the first 10 entries here:
https://en.wikipedia.org/wiki/List_of_countries_by_tax_rates
The corporate tax rate starts from high amount, while individual starts from lower amount, and in many case even the top earners don't have as high. It's mostly because top earners are still salaried and that's not "profit", if you have a business you already are paying corporate tax. Many rich people employ their family to pay less tax, but you can't do anything that requires specific qualifications.
Edit: for individual tax brackets and what is a reasonable salary, would take more research. I might do that later in the month because now I'm interested.
I wrote a free spec script for a charity organization, enabling me to write off ~$50k in charitable donations for putting in a few hours of work.
Everyone should be looking for loopholes and ways to prevent the US government from getting their money.
I asked a CPA about this idea a couple months ago and was told that it doesn't work that way, and everything I can find on the internet backs that up. Can you provide a source saying otherwise?
I'm gonna agree with you. If OP gets audited, this will not hold up. OP cannot deduct money for a service that the charity pays nothing for. Only unreimbursed or out of pocket expenses can be deducted this way
If OP gets audited, this will not hold up.
The IRS actually already did look it over. They decided (rather arbitrarily) that the script I donated was worth ~50,000 instead of ~70,000 as I was trying to claim. Definitely not a full audit, but they already reviewed it at some level and it passed muster.
Right because you're donating intellectual property which is property. And that distinction is fucking nonsense but here we are. I doubt a full audit would allow market prices to survive on that though. They'd be like "hey now, this didn't cost you that." But to do a full audit we'd actually have to fund the IRS. Good luck getting that to happen.
They’d be like “hey now, this didn’t cost you that.”
But would not that depend on how OP's time is valued in this case? OP could argue that their expertise costs $14000/hour ($70000 over 5 hours). I am sure that they would argue the hour cost, I have not clue how the IRS handles something like this.
They don't let you deduct the cost of your own labor ever. The property thing is the loophole (but after further research not a real loophole and they will nail you for it).
They don’t let you deduct the cost of your own labor ever.
Yes, but ... if you use your own labor to create a product, and then donate the product, you can deduct the value of the product.
But my point is technically you can deduct the cost of the product. Lets say you knitted an Afghan that you can sell on Etsy and donated it to someone. You can only technically deduct the cost of the yarn, but you're getting away with doing the market value thing. Full audit would nail you for it but the IRS isn't staffed enough to call you in for one of those.
Would the IRS have a problem with writing of the value of the yarn or the "market value" of the product?
The value of the yarn is deductible if you make the product. If you sell the product to someone they can deduct the full value if they donate it while you pay income taxes on the profit. Trying to backdoor your labor as a deduction is what the IRS has a problem with because you're not allowed to do that.
As I understand it, technically the "thing of value" is the script itself - because it doesn't have a clearly defined value you can get away with claiming some fairly crazy valuations.
There's a very similar tax loophole popular with the wealthy where you get a "great deal" on some slightly valuable art, donate it to charity, get it valued by an "expert" you know, who just happens to think it's worth many times what you paid, then write that off on your taxes. Basically free money.
Do you know if this expert has to have some kind of credentials? Or could John Smith start a non-profit, Jenny Smithy have James Smithens who is an "expert" say the value (of some object) is more than Jenny owns, have Jenny donate this object to John's non-profit and then tax $0?
(I know it technically can be done, but do you know if there is some threshold were it will be flagged? Writing of more than you own would be a flag and call for an audit but what about something worth $1000?)
I intend to pass the loophole my parents gave me to my children, really grateful for it
You sound like every business man ever.
Things you buy for work are also tax deductible, it’s more noticeable for businesses since they don’t generally make employees pay business expenses.
Makes more sense than it might seem, since when you pay all those bills, that's usually taxable income to the recipient. So if it isn't a write off, taxes can be paid many times on the same item.
Progressive taxes are kind of supposed to take into account basic necessities and tax you more on estimated expendable income. So if you earn more, you can pay a higher portion of what you earn.
But also, I agree. Especially with cost of living being radically different depending on where you live. House, car, utilities, and grocery should all be deductible.
You have to think about why it works that way.
A profit from a business is money that is taken out of the business. If the activities of the business generate more money than the business is spending, it doesn't have to become profit. It can also be re-invested in hiring more people, buying more equipment, training their workforce, expanding to new locations, even given as raises or bonuses to their employees. In theory, all of the things other than generating a profit are generally things that are good for the community. Employees can get hired, or trained, or raises. The business can expand allowing more people to buy from them, etc.
A profit is taxed because it's basically what a business does when it doesn't have any other useful ways of spending its money. In that case the excess money is just going to the business owners. The government is basically saying "ok, well if you aren't going to use that money for something that benefits everyone, and are just going to give it to the owners, we'll take our cut now. If the profits go directly to the business owners as income, they're then taxed again as income tax (again, in theory, in practice business owners don't want to pay that as income tax so they'll try to arrange to avoid it).
Income taxes are a different kind of taxation. They're basically a way for the government to own part of your labour. They go back to the time when peasants worked on the land. In exchange for the soldiers protecting them from bandits, the peasants shared some of their harvest. (I realize it was much more coercive than that, but the idealized theory is that taxes were to support the government which protects you or provides you services.)
The obvious problem with "after I've paid all my bills and rent" is that "all my bills and rent" is something that someone could always adjust so they had to pay zero taxes. Even if you just limited it to "my housing expenses, food expenses, water bill, and electrical bill" someone might buy a huge house, or buy only the finest groceries, or install lavish fountains, or run up their electrical bills. So, instead you might want to say that someone only gets taxed after reasonable living expenses are deducted... and that's how things work.
Progressive taxation schemes typically mean that you pay 0 tax on your first X dollars earned per year. X is supposedly set to the minimum of what someone needs to get by. The way it's done on the US is that the lowest tax rate is set at 10%, but the standard deduction is set at $15,750, so the 10% only kicks in once you've passed that. $15,750 is absurdly low. It should really be at least double that, if not triple, but the idea is there. That's the "only after I've paid all my bills and rent" number, if you assume someone is paying the lowest rent possible and their bills are the absolute necessities. But, I don't think anybody could realistically live on their own for $15,750 per year.
So... yeah, Lisa. Things already work like that. It's just that the numbers are all fucked, there are too many loopholes and exceptions.
Businesses do the exact same thing to hide their profits, espicially since the owners can now borrow money against the value of their shares instead of relying on profits.
I'd say it would be nothing but a boon to the economy. Yes we'd lose a TON of tax revenue from the lower and middle class, but it would be more than made up for by the richest, who's income is nearly entirely spending money, that they choose not to spend. (When not hidden in stocks or options or other assets).
The rich should pay more, but the rich could also hide their income by spending it -- they'd also have the benefit of consultants and lawyers who could sniff out every loophole.
Yeah, it could possibly work if the "after bills" portion is super specific. Like rent/mortgage and utilities on primary residence Everything else is taxed. Would be hard to loophole that, but there's a reason I'm not a lawyer.
It would be pretty easy for loopholes there. What's a primary residence? Maybe your primary residence now contains a pub, or a co-working space, or a dance studio. Utilities are included? Well your electrical bill now supports a couple of for-profit electric car charging stations. That's why they went with the standard deduction in the US.
If the rich spent their income the global economy would be in MUCH better shape.
Here's my opinion, as someone who has zero education in economics. Feel free to voice your disagreement if you know better
If your personal expenses match your income but those expenses can't be written off, the resulting taxes result in a net loss for that month. This would be the same with a business if expenses could not be written off
And in my opinion, buying a house should not be written off as a personal expense, and neither should a business buying a warehouse be able to write it off either. If something can be sold, only the permanent loss should be considered an expense -- the remainder should be an asset
But bills and rent are generally permanent expenses. You don't get anything back after paying them, except the continuation of your services. I think these should be deductible. Similarly, if a business has to pay for a SaaS solution, I'm okay with that being a deductible
Is my thinking flawed?
So, instead you might want to say that someone only gets taxed after reasonable living expenses are deducted… and that’s how things work.
Things already work like that
Dude. What the fuck are you on?
Walmart revenue was $681 billion Walmart taxes were $6.8 billion.
Reinvestment doesn't matter in this comparison. If it did, I could reinvest some money into something that would lower my taxable amount. That's what the meme is about.
There got to be better examples than that. Walmart manages about 4% margin, so 653 billion went toward procuring the stuff for sale. That figure suggests a tax rate of 25%, which is low at that magnitude but not as dramatically low as other companies pull off.
Dude. What the fuck are you on?
You can invest money into things that lower your taxable amount, for example charitable donations, investing in your pension and improving your home energy efficiency. That's exactly what tax credits and itemised tax deductions are.
If corporations are people now then why do the get away with not paying the federal income tax?
That's kind of what the standard deduction is. Horribly out of date and not on pace with inflation, but still.
Surely businesses' investments can't be written off? If they could, that would be a massive flaw in the system
They can, and I think it makes a lot of sense.
Lets say you start a lawncare business and buy a lawnmower for $1000. You don't manage to get that many customers the first year, and only make exactly $1000. You haven't lost money, but didn't make any profit either.
Should you now have to pay tax on those $1000 dollars of revenue, causing you to have lost money despite your hard work? Where would you even get that money from to pay the tax?
I think the problem is not the basic system, but that the rules are too complex and have loopholes that allow you to pay less tax if you are an expert on the rules - or have enough money that it's worth it to hire one.
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