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Do write-offs become "useless" at a certain point?

I assume that if a person's taxable income is at $0 for the year then there's no benefit to keep searching for write offs. Is this the case?

Furthermore, if you have 50k taxable income then a write-off of $1000 is more advantageous (in theory) than if your taxable income is 5k. Is that correct?

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    what do you mean by "write off"? tax deduction? If you have no taxes to pay, then yeah - deductions are useless. So?
    – littleadv
    Commented Jan 18, 2022 at 16:39
  • Please forgive my lack of tax knowledge. Is it more correct to say "tax deduction" instead of "write off" ?
    – Jacksonkr
    Commented Jan 18, 2022 at 16:47
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    It really depends on what you mean :) There is such a thing as "write off", and there is such a thing as "deduction" and they are not the same
    – littleadv
    Commented Jan 18, 2022 at 16:49

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Deductions to your taxable income reduce your tax owed at your marginal tax rate. So yes, a deduction with a 50k taxable income (after all other deductions) reduces your tax more than a deduction with a 5k taxable income because they are in different tax brackets.

But, depending on the nature of the deduction, if you have no taxable income to reduce, you can possibly carry over the deduction to future years in which you do have taxable income.

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    There are very few deductions that you can carry forward. In fact, other than charitable contributions, I can't think of any. What you can carry forward is NOL though (or losses for a specific class of income like capital losses or passive activity losses).
    – littleadv
    Commented Jan 18, 2022 at 17:05
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Even if you DO have taxable income, a Write-off (Deduction type) may not even help you unless your total deductions exceed the Standard deduction.

If $1000 was the total amount of itemized deductions you had, you'd be better off not even claiming it and just taking the standard deduction which is $12,550 as of 2021

Note: A "Write-off" has a different meaning in business accounting than personal taxes.

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  • If you don't mind my asking, what are the differences ? (between the business & personal uses of "write-off")
    – Jacksonkr
    Commented Jan 18, 2022 at 22:03
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    For a business a write-off is sometimes used to indicate an asset has lost value. For example an account Receivable has become uncollectable, or some equipment was destroyed. The accounting and tax implications are more complex in these situations. In the end, the term "Write-off" is pretty generic and can mean a lot of things. So some context on why you are asking could help.
    – JohnFx ♦
    Commented Jan 18, 2022 at 22:13
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In general a deduction is only good if you are itemizing, unless it is a deduction that you are allowed to take even if you take the standard deduction. Items that fall into this category are a $250 teacher deduct om for supplies, and the $300/$600 charitable donation since 2020.

Assuming you can see the impact of the deduction on your tax forms then the amount it saves you in taxes is your marginal rate times the amount of the deduction. If you are in the 10% tax bracket then a $1,000 in extra deductions saves you $100. If you are in the 32% bracket it will save you $320.

In these calculations don't forget your state and local income taxes. In some cases the list of things that are deductible are different. In some states the decision to itemize or not must match between the federal and the state taxes. In other cases, you can itemize on one and take the standard deduction on the other.

In some cases the government doesn't allow a deduction, instead they give you a tax credit. That saves you $x no matter your income, assuming that you qualify for it. Those economic stimulus payments the last few years were tax credits. The best tax credits are refundable. In those cases you can essentially have a negative amount of taxes.

I assume that if a person's taxable income is at $0 for the year then there's no benefit to keep searching for write offs. Is this the case?

So if by write-off you mean deduction, then once you get to zero there is no benefit. But if you mean tax credit, then it is possible to get that credit paid to you even if you taxable income was zero.

There are a small number of cases where if you can't use the full deduction, it can be rolled over.

This is an area where the tax software packages do a good job. List everything that applies, and see what the result is.

Furthermore, if you have 50k taxable income then a write-off of $1000 is more advantageous (in theory) than if your taxable income is 5k. Is that correct?

If your taxable income is $5,000 then finding another $1,000 to deduct will save you $100, which you can see as a 2% bump in pay. If you have $50K in taxable income then the $220 you save is like a 0.44% bump in pay. It's all relative.

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