How Income Tax Deductions Work

Tax-Deductions

Higher Income Taxes for 2015?

The tax rates in effFeedback ect in 2013 are scheduled to expire at the end of the  2015 calendar year. These rates went into effect in 2001 and 2003 when  income tax rates were reduced across the board as part of the so-called  “Bush tax cuts.” Starting in 2015, the tax rates are scheduled to go back to  the higher tax rates in effect prior to 2001. If this happens, the 10% rate will be eliminated and the new rates will be 15%, 28%, 31%, 36%, and 39.6%. Most people believe Congress will not allow rates to return to their pre-2001 higher levels. However, as this artical went to press it was unclear what the income tax rates would be for 2015 and later.

Each year, the federal government adjusts income tax brackets for  inflation. For current brackets, see IRS Publication 505, Tax Withholding  and Estimated Tax.  You can also deduct your rental activity expenses from any state  income tax you must pay. The average state income tax rate is about 6%,  although seven states (Alaska, Florida, Nevada, South

Dakota, Texas, Washington, and Wyoming) don’t have an income tax. You can find a  list of all state income tax rates at www.taxadmin.org.

the 25% federal income tax bracket, a deduction can be worth 25%  (in federal income taxes) plus 6% (in state income taxes). That adds up  to a whopping 31% savings. (If you itemize your personal deductions,

your actual tax savings from a business deduction is a bit less because it  reduces your state income tax and therefore reduces the federal income  tax savings from this itemized deduction.) If you buy a $1,000 computer  for your rental activity and you deduct the expense, you save about $310  in income taxes. In effect, the government is paying for almost one-third  of your rental expenses. This is why it’s so important to know all the  deductions you are entitled to take and to take advantage of every one.  You should get into the habit of thinking about your rental expenses  in terms of after-tax dollars—what the item really costs you after you  deduct the cost from your income taxes.

Source: freetaxinformation.com

Category: Taxes

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