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Don’t spend money to save tax dollars

March 19, 2010

You know that old saying, you've got to spend money to make money? That might be true in some cases.

But when it comes to taxes, don't fall for spending money just to save on taxes.

Year after tax year, one of the most common refrains from both so-called experts and taxpayers is "there's a deduction for that." 

I admit it. I write about deductions here on the ol' blog all the time. But when it comes to these tax breaks, every filer needs to answer a key question:

Handing over money (5)

What exactly is that deduction worth?

If you can't come up with a good financial and tax answer, then you shouldn't be spending simply because "there's a deduction for that."

Folks who use the spend-to-save approach to tax cutting remind me of shoppers who indiscriminately use coupons and end up forking over more than they meant to and a heck of a lot more than they saved. Why purchase for a few dollars a product that you normally wouldn't buy just to save a few pennies?

So that's why I was thrilled to see the tax advice of Mike Callahan, tax director at Spicer Jeffries LLP in Greenwood Village, Colo., over on Going Concern. (And thanks, Tax Update Blog for the tip.)

Mike shared with GC's Caleb Newquist five overrated tax planning ideas. Four of them essentially are don't go spending your money to get negligible tax savings.

The thing people tend to forget when they hear "deduction" is that you'll only get a percent of the money you spend back via your tax return. If you have a $100 deduction and are in the 25 percent tax bracket, it's worth $25 less taxes.

But you're still out the other $75.

So if an expense is for something you truly need and it can provide you a deduction, that's a great bonus.

But if you really you didn't really need what you paid the Benjamin for, then you've lost in the long run, even with the tax break.

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The More Tax Posts tab at the top of this page will take you to, well, more tax posts. You also can search below for a tax topic. 

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TAX-SAVVY WAYS 
TO WRAP UP 2026

It’s over! With October’s extended filing deadline behind us, it is now time to focus on year-end moves to reduce your 2026 tax bill. 

You’ll find ways to do just that on the Tax Tips page (see the More Tax Posts drop-down menu at the top of the blog), as well as the separate tax tip pages for each month, notably October through December. If you’re on the Tax Tips page, you’ll find a monthly list at the end of this column. If you’re on another blog page, you can head straight to the October tips; at the bottom of that tips page you’ll find links to all the other 11 months’ collections of tax advice.

Not to spoil what you’ll find in that tax advice, but it does cover such things as tax deductions for charitable donations, investment moves that could reduce tax due, and ways to max out your tax-favored retirement savings. 

Finally, as the year winds down, things get hectic. There are lots of other things to occupy our time, like the much more fun upcoming holidays. But don’t lose sight of taxes, since timing is key. To be of use, most tax moves must be made by the end of the tax year. That’s Thursday, Dec. 31, which also is the last business day of the year. 

So that you don’t miss that final tax year deadline, also keep an eye on the countdown clock below. It will keep you on top of just how much time is left to make important, tax-saving moves. (Note: I’m in the Central Time Zone, so adjust accordingly for where you live.)

Comments
  • Well, I agree but disagree a little.
    I find that people can save money but spending money (such as putting some in an IRA, etc…) though by spending the money you are technically doing something that you should be doing anyway
    And there are the rules about IRA’s where you can’t touch for awhile, etc….

  • Wow, awesome tips here. And dang do the tips go on and on! Definitely something I’ll set some side aside and dig into.

  • That’s a great tips..thanks for it!I will apply it myself..thanks

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