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Understanding deductions with real numbers

I elected to do my own taxes this year with TurboTax rather than paying someone else because I wanted to understand how they worked.  Can someone please explain the following 2 situations:

My current estimated refund (as indicated by TurboTax is $5318.

I add an expense of $1000 to Travel Expenses.  New refund amount = $5551 (+$233)

I delete that item and instead add the $1000 expense to Meals 50%. Refund = $5427 (+$109)

Question 1: Why is the refund amount not a 50% difference?  

Situation 2: My current estimated refund is $5346 
I add the same $1000 expense to Travel.  New refund amount = $5553 (+$207)

 

Question 2: Why did I receive +$233 the first time and only +$207 the second time (a $26 difference)?

I figured there would be a standard % you get back from any expenses, say about 20%, so I should have expected the same amount for the same expense each time?

These are probably very novice questions but I appreciate anyone who has the time to help me understand!!

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2 Replies

Understanding deductions with real numbers

Your question illustrates why we need a computer program to calculate our taxes. Changing income (I assume that you are self employed) also changes your self employment tax, many credits and your maximum allowed SEP contribution among other things. You would have to compare each of your scenarios line by line to see the changes if you want to understand how your tax liability is calculated. 

ThomasM125
Expert Alumni

Understanding deductions with real numbers

There are other things that can affect the net amount of tax in addition to your tax rate. For instance, you may have an earned income or other tax credits that are sensitive to your income. Also, your tax rate on additional income can be different than the tax rate on your original income amount. Furthermore, TurboTax uses tax tables to compute your tax, so you will pay the same tax for income in certain ranges, so all income may not be being taxed at the same exact rate.

 

You can look on your tax return form 1040 in lines 19 and below to see if you have any credits that are changing in response to your expense entries.

 

You can view your form 1040 while working in the online version of TurboTax by following these steps:

 

While working on your return in the Federal section of TurboTax:

 

   1.  Choose the Tax Tools icon on your left menu bar

   2.  Tools

   3.  View Tax Summary

   4.  Choose the Preview my 1040 on your left menu bar

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