Our old friend Johnny Jingles has gotten ambitious. Word about town is that he is thinking about becoming a small business owner. It seems that he has determined that he can make lots of money and use it all but never owe any taxes because of all the tax write offs he thinks he’s entitled to take on his return. Poor Johnny Jingles is a bit confused.
As a tax preparer I’m often surprised to find out how few people, even people who own businesses really understand how tax write offs really work and my old friend Johnny Jingles is no exception. When I ran into Johnny Jingles in the grocery store I knew he would follow me around asking me questions because I had heard through the local grapevine that he had started a business.
I could see him approaching me out of the corner of my eye as I turned the bend into the cereal aisle but I kept moving quickly hoping that he didn’t recognize me and that he wouldn’t turn down the aisle after me. There was to be no such luck for me. I kept walking but I could hear him jingling the coins in his pocket as he closed the gap behind me before he started to speak to me.
“Hey there, if it isn’t Miss Numbers. How’s everything going in that tax office of yours?”
Caught like a mouse in a trap, I had no choice but to be civil and to answer.
“Everything is fine, Johnny. How are you?”
“Well, I’m really swell. I guess you heard around town that I’m starting my own business.”
“No, I can’t say that I have.”
“Well, I am. I’m starting a grass cutting business. I found out that I can write off all the income with all kinds of tax write offs and that way I don’t really have to pay for anything I buy. That’s right, isn’t it?
“Not precisely. You can reduce the income by allowable tax write offs which are equal to the cost of the things that you buy. You then don’t have to pay income taxes on that portion of the income, but you still have to pay for the item that you buy. You save the tax on the income, not the cost of the item.”
“Well, Gee Wiz, Miss Numbers, that’s not the way I thought it worked. If I still have to pay for the truck that I buy to carry the lawn mower and for the lawn mower then I don’t think this business is such a good idea. Wow, it’s a good thing I ran into you today before I went to buy the lawn mower. By the way, I see you are buying the Special K but you know Corn Flakes are on sale today. Well, you have yourself a good day.”
“Why thanks for the shopping tip Johnny. It’s been real nice talking to you. You have yourself a good day, too.”
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