Can Tax Writeoffs Help Lower Your Tax Bracket?
Writeoffs and Deductions
Writeoffs and deductions are the same thing, although the term “writeoff” generally applies to business taxes and “deduction” is used to describe both business and individual taxes. A writeoff is a legitimate amount of money the tax filer may subtract from the amount of reportable income. The IRS allows you to take a standard deduction to lower your income, but if the amount of your deductible expenses is higher than the standard deduction, you can itemize your deductions, which can sometimes put you in a lower tax bracket.
Tax brackets represent the percentage of your income you must pay. The income amounts that determine which tax bracket you’re in fluctuate from year to year, but as of 2011, the IRS uses six tax brackets based on your income, after deductions. The brackets are 0-, 15-, 25-, 28-, 33- and 35-percent. In 2012, if you’re single and your income was between $34,500 and $83,600, you will pay 25-percent of your income in taxes. If your income is near the bottom of a tax bracket, a legitimate deduction or tax writeoff could put you in a lower bracket and you would pay less tax.
If you own a business, the expenses you pay throughout the year in order to do business are deductible against the money your business makes. For example, if you bake and decorate cakes professionally, you must keep track of all the money you receive from selling your cakes. If you sell a wedding cake for $1,500, you can deduct what it cost you to make, deliver and set up the cake display Those expenses are legitimate tax writeoffs. At the end of the year, you may also write off other expenses, including a portion of your medical insurance, business use of your home, travel, education expense, and numerous other fees. If you’re income is near the bottom of a tax bracket, writeoffs can put you in a lower bracket.
Helpful IRS Information
- Filing Status and Tax Brackets
Your current tax bracket depends upon your income and your filing status.
- Deducting Business Expenses
Do you work out of your home? Are you a stay at home mom? Do you own a small business? If you answered "yes" to any of these questions, you may be able to deduct legitimate business expenses.
- Tax Topics - Topic 500 Itemized Deductions
Don't miss any legitimate deductions or you'll miss a chance to lower your taxes, and maybe, your tax bracket.
Even if you don’t own a business, you may deduct certain costs that could put you in a lower tax bracket. These costs include money you spent for someone in your family to go to college, medical expenses, interest paid on a home mortgage and money or items of value you donated to charities.
The IRS allows a Standard Deduction for all tax filers that depend upon family size and other factors, but if you had more qualifying expenses than the Standard Deduction, you can itemize your deductions, meaning, you can list all of them separately and further reduce your taxable adjusted income.
You might be eligible for additional deductions if you have an adult child living at home, or if you're retirement age or if you have a physical disability.
Tax Credits vs. Tax Deductions
Top Tax Bracket Lowering Tips
Buy a House. The interest on your mortgage is deductible. In addition to lowering your taxable income, a house is still the best investment you can make. When you sell your home, the Capital Gains you receive, up to $250,000 isn’t taxable, offering you another source of tax-free income.
Take all the tax credit writeoffs you’re entitled to take. The most common tax credits include deductions for adopting a child, college expenses and retirement savings. Contributing as much as possible to your IRA can also help lower your tax bracket.