Like Kramer & Jerry, a lot of folks don’t really know what a write-off is. It’s a tax deduction, but a lot of folks think it is a tax credit. The difference is HUGE. A tax credit lowers the amount you owe in taxes, dollar for dollar. That’s pretty sweet. A tax deduction is basically a discount equal to your tax bracket.
If you are in the 25% tax bracket, and you spend $1,000 on something that you can write-off your income taxes as a tax deduction, you will save $250 in taxes. But a $1,000 tax credit chops $1,000 off what you owe in taxes, no matter which bracket.
So where do I gets me some of them tax credits?
Maybe that’s why Brangelina adopted so many babies. It was a profit deal! The tax credit for adoption starts to phase out when your modified adjusted gross income is $201,010, and it is completely gone at $241,010. I wonder if Brad & Angelina had mediocre years (for them) and swooped in for some tax babies!
More on Write-Offs
If you look to buy a house, people always chime in, “You know, you can write-off the interest on a mortgage.” That is better than nothing. But if you are in the 25% tax bracket and you buy a house because you want to get 25 cents back for every dollar you pay in interest, I have an offer for you. I you liked getting 25 cents for every dollar you paid someone, will give you 50 cents for every dollar you give me! Deal?
Bottom line: If you need something, and you can get a tax deduction or tax credit – great! But if you don’t need it, keep the money in your pocket.