Tax write offs, savings

California

I was wondering how much one saves from a tax write off. I guess i'm pretty new to the tax write off thing and wanted to know what exactly it saved me.

I have an agent whom i pay 10% of my income to. Let's say i make 125k, and give him 12,500 (from my take home pay, not gross). I'm told i can write off 7% of their 10% commission. what does that mean? does it mean that i'm really only losing $3750 (3% of 125000) when you calculate what i get reduced from my taxes? Does the write off of the 7% (or $9250) lower my tax bracket by that amount, so it looks as though i make only $113,850, and that's what i'm taxed on?

sorry for such an elementary tax question, new to the process.

Click to expand...

Itemized deductions are certain expenses that you can use to lower your taxes. The categories of itemized deductions are:
* Medical and dental expenses,
* State and local income taxes, or sales tax,
* Real estate and personal property taxes,
* Home mortgage and investment interest,
* Charitable contributions,
* Casualty and theft losses,
* Job expenses, and
* Miscellaneous deductions

Generally, you must decide whether to itemize deductions or to use the standard deduction. You should itemize deductions if your allowable itemized deductions are more than your standard deduction. Some taxpayers must itemize deductions because they do not qualify for the standard deduction.

Those taxpayers not eligible to use the standard deduction include nonresident aliens, dual–status aliens, and individuals who file returns for periods of less than 12 months. When a married couple files separate returns and one spouse itemizes deductions, the other spouse must also itemize deductions. For additional information, refer to Publication 501, Exemptions, Standard Deduction, and Filing Information.

You may be subject to a limit on some of your itemized deductions based on your adjusted gross income, please refer to the Form 1040 Instructions for these limitation amounts. This limit applies to all itemized deductions except medical and dental expenses, casualty and theft losses, gambling losses, and investment interest.

Click to expand...

Job Expenses and Certain Miscellaneous Deductions
You can deduct only the part of these expenses that exceeds 2% of the amount on Form 1040, line 38.

Click to expand...

Ginny J said:

thanks.Curious here: who said that you can write off only 7% of the 10%?

The short answer is: yes, the percentage of you can actually expense comes off the top. For example, if you are in the 25% tax bracket and you have qualified expenses of $10,000, the amount coming off the top is $10000 for a tax savings of $2500.
From various publications on the IRS website (irs.gov). If you are a 'qualified performing artists', see at the bottom.

Secondly, will you be receiving a w-2? or a 1099-misc. That also makes a difference.

Click to expand...

fife321 said:

thanks for the responses!

i'll be receiving a W-2, i have taxes taken out of my check, and from that check i pay my agent his 10% of my gross...

no question i'm having a "pro" take care of my taxes, but i'm still trying to figure out what i'm really spending on my agent when you factor in tax dedcutions...sorry for being a slow learner ...

so, let's say i can write off the full 10%, does that mean i will only be taxed on 112500 of my income?

i work in the media, so i don't think i qualify for a 'performing artist'...

thanks again.

Click to expand...

abezon said:

You might want to consider incorporating or forming an LLC/S-corp. You could then deduct your expenses on the corp return instead of on Schedule A, and pay yourself a salary (maybe $60,000) & take the rest of your corp profits as a distribution not subject to employment taxes. See a sharp tax pro for help deciding whether this would be worth the hassle for you.

Click to expand...

i'll be receiving a W-2, i have taxes taken out of my check, and from that check i pay my agent his 10% of my gross...

Click to expand...