Tax Tips: Deductible Expenses

There are often misconceptions on the benefits individual taxpayers receive when spending their money on deductible expenses.

A key mistake individuals make is assuming each dollar spent will save them a dollar on tax.

This is wrong!

Rather, the dollar spent will reduce your taxable income by a dollar. The benefit you will receive is dependent on the marginal rate you are in.

Example

Sally, a high income earner has a taxable income of $190,000. For every dollar spent on deductible expenses Sally will ‘get back’ 45 cents. Therefore, if you’re in a lower marginal tax rate, the return on every dollar spent will reduce.

To see what tax bracket you may sit in for the 2020/21 tax year, click the link below.