Tax deductions – Reduce your Tax and Income

What many forget about tax deductions is, that they actually reduce your income as well as reducing your tax.

Currently (2007-2008) if your taxable income is between 30k & 75k your rate of tax is 30%. If you spend $1000 on an allowable deduction you will reduce the tax payable by $300, so you have spent $1000 to save $300. In my eyes, it is not the best way to save money.

Now if spending that $1000 is integral to earning your income then that is fine (eg the cost of a vehicle to earn an income). If you are spending the money just to save tax, which being in practice I see people do, then it’s just stupid.