Explain tax deductions to me like I'm 5? ?
So I am a new 1099 worker in VA. I am trying to figure out how tax deductions work but no matter how much I google it, I don't get it. Explain it to me like I'm 5 please. So let's say I spend $500 on a new shear set for work, and claim that on my taxes, do I owe $500 less when it's time to pay or what?
- SlickterpLv 73 weeks ago
Deductions reduce your INCOME, not your tax.
- ShayLv 73 weeks ago
Tax deductions reduce your taxable income.
If your total income for the year is $75,000 but you have allowable deductions that total $40,000 for the year - then your taxable income is only $35,000 for the year.
So - you do not owe $40,000 less in taxes - you are just not taxed for that $40,000.
When you are starting a new business or working as a 1099 contract worker - it might be a good idea to have a professional do your taxes for the first one or two years while you learn a little more about how it all works.
Or find a web based tax service that has easy to understand instructions to help you do your own taxes.
- RICKLv 73 weeks ago
No, your taxable income is reduced by the amount of depreciation you are allowed to deduct. Let's say your $500 shear set has a usful life expectancy of 5 years, you would be able to deduct $100 for 5 years in a row. So if you made $12,000 that one item would reduce your taxable income to $11,900
- AmyLv 73 weeks ago
You count $500 less income from your business.
For example, if you got paid $700 but your expenses were $500, then your business income is only $200. You only owe tax on that $200.
Tax rates vary based on your total income. A $500 deduction probably reduces the tax you owe by $50 or $60, but it could be more.
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- StephenWeinsteinLv 73 weeks ago
First, if you buy something that is expected to last more than a year, then it is extremely to claim it all at one time. You must claim only a small part each year. Since I am explaining like you are 5, I'm going to say you would go to jail if you tried to claim it all at once. (If I was explaining it like you were an adult, I would say that you probably won't go to jail, but you would be fined a lot of money.)
Second, if you claim $500, you do not owe $500 less. You owe tax on $500 less of income. For example, if you made $9000 and claim $500, then the tax you owe is what you would have owed if you made $8500.
- 3 weeks ago
If you count as self-employed, you're taxed on your profits, not your income. Profits are what you get paid, less expenses and less overheads. Tools count as expenses. Let's suppose you get paid $35,000 and you have expenses and overheads of $1,000, you get taxed on $34,000. Book a session with an accountant. His advice on what you can claim as expenses and overheads should save you more tax than his fee.
- ANDRE LLv 73 weeks ago
Deductions are used when calculating the difference between your GROSS income and your TAXABLE income.
So, if you had, say, a total income of $50,000, and you deducted that set, then that would reduce your TAXABLE income by $500.
You USED to have a starting deduction of $4,000, but the GOP made that go away, which is one way they actually INCREASED taxes on working people.