How Do Tax Write-Offs Work?

Video Transcript

"Hi, we're here today to talk about tax write offs and how they work. In general, a tax write off is something that you can claim as an expense and it reduces your adjusted gross income, therefore your tax rate is based on a lower amount. For instance if you make... have received fifty thousand dollars in salary, and if you have a write off of two thousand dollars, that takes your taxable income down to forty eight thousand and when you go to the tax tables that obviously forty eight thousand requires you pay less taxes than fifty thousand so the write offs are a helpful financial tool. Now, there's a difference between right offs and credits. Credits are actually applied to the amount of tax that you owe. If you're in the twenty five percent tax bracket and you have a hundred dollar tax right off, that would reduce your adjusted gross income by a hundred dollars, which in the twenty five percent bracket would equate to saving you twenty five dollars in taxes. Where as a hundred dollar tax credit would come right off the bottom. If the taxes that you owe were say fifteen hundred dollars, that one hundred would come right off the fifteen hundred dollars, so obviously any time you can take a tax credit, it's far more beneficial than a tax right off. But typically most people have more right offs than they do credit."