Is anything 100% tax deductable ie it comes directly of you tax bill?

Question

Someone told me that some things are tax deductable 100%, but if so you would just spend money on things to the value of your tax bill so you didn't have to pay anything. Is he speaking sh*t?

Answer 1

I can only speak for US.
If one is buying a home with a mortgage, and pays $1,000.00 in interest for one year, one cannot deduct that amount directly from ones tax liability.

That amount can only be deducted from ones gross income.

Then one is taxed on the adjusted income, at a percentage, based on the bracket in which it falls.

If the taxable rate is 20% of the adjusted income, then the savings in tax paid is approximately 20% of that $1,000.00 paid in interest. $200.00. The difference of $800.00 is just gone.

So, if one had the ability to pay off the mortgage in full, one may pay an additional tax of $200.00, but would save $800.00 in lost interest paid.
One could then invest or just save $800.00.

I cannot understand why most people do not understand this.

Answer 2

There are very few methods of avoiding tax completely. Tax deductable refers only to the tax paid on an item so Charity donations are tax deductable meaning that you get back the tax not the donation.

Personally I don't pay any tax in the UK, I work abroad and my company covers my tax liabilities there, as I am in the UK less than 90 days a year I owe nothing to the inland revenue. I can't recommend it though as I never see my friends or family.

Answer 3

You can certainly get Tax Relief on qualifying expenses but you would have to be losing money to avoid paying tax completely.

Bear in mind a lot of expenses are excluded or add backs you will normally expect to pay something. If you don't, expect a visit from MR Tax man.