You know that old saying, you've got to spend money to make money? That might be true in some cases.
But when it comes to taxes, don't fall for spending money just to save on taxes.
Year after tax year, one of the most common refrains from both so-called experts and taxpayers is "there's a deduction for that."
I admit it. I write about deductions here on the ol' blog all the time. But when it comes to these tax breaks, every filer needs to answer a key question:
What exactly is that deduction worth?
If you can't come up with a good financial and tax answer, then you shouldn't be spending simply because "there's a deduction for that."
Folks who use the spend-to-save approach to tax cutting remind me of shoppers who indiscriminately use coupons and end up forking over more than they meant to and a heck of a lot more than they saved. Why purchase for a few dollars a product that you normally wouldn't buy just to save a few pennies?
Mike shared with GC's Caleb Newquist five overrated tax planning ideas. Four of them essentially are don't go spending your money to get negligible tax savings.
The thing people tend to forget when they hear "deduction" is that you'll only get a percent of the money you spend back via your tax return. If you have a $100 deduction and are in the 25 percent tax bracket, it's worth $25 less taxes.
But you're still out the other $75.
So if an expense is for something you truly need and it can provide you a deduction, that's a great bonus.
But if you really you didn't really need what you paid the Benjamin for, then you've lost in the long run, even with the tax break.Related posts:
- Tax breaks without itemizing
- 7 new tax laws that could save you money
- Don't overlook these tax breaks
- Don't forget your Daily Tax Tip!
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