Applied Cost

  

Categories: Accounting, Tax

You don't know the actual cost, so you're making one up. You're applying your creativity. Think: car mileage. You have no idea what it actually costs you to drive your 1997 Ford Taurus the 22 miles back and forth to work everyday. You bought it. You have gas, maintenance, insurance, and a ticket every month or two.

So you make up a per mile cost (Okay, we'll be generous...you estimate a cost) and apply that metric when you seek that deduction on your taxes.

Related or Semi-related Video

Finance: What are Payroll Deductions?13 Views

00:00

Finance a la shmoop. What are payroll deductions? All right for your pay you

00:08

get a roll of bills but some of them go back to mama corporation who then gives [Money is given to the person]

00:14

them back to mama government more or less. That is there's

00:18

money that is deducted from your payroll before you can get your hot little hands [Deductions highlighted on a payslip]

00:24

on it. Why? Well everyone who makes more than a very small amount of money pays

00:29

taxes and just so that you don't quote forget unquote to pay those taxes at the [Guy stood in front of a vault]

00:36

end of the year well the government has set up corporations with the great [Skyscrapers in a city]

00:40

pleasure of collecting your taxes from you in small pieces all along the way of [Woman looking at bills and sighing]

00:45

your grueling grinding year of work. Well most people get paid twice a month or

00:49

twenty four times a year and most people know roughly what they'll make that year [Pay dates shown on a calendar]

00:54

and yes there are variable bonuses or commissions and company profit sharing [Woman sat at her desk thinking about her salary]

00:58

plans and sometimes the conversion of stock options into cash if you're lucky

01:02

and so on but all of those are adjustments that can pretty easily be

01:07

made on the fly when it comes to payroll deductions so if you are to pay say 24 [Breifcase full of cash]

01:12

grand in taxes in a year within say 80 grand or so of earnings well then mama

01:17

corporation will gently deduct a grand from your paycheck each pay period each

01:23

of those 24 periods so that at the end of the year well you've already paid [Pay deductions shown month by month]

01:27

almost all of your taxes and this is a good idea as so many people simply [Thumbs up]

01:32

aren't disciplined enough to save money for their tax bills and oh so many [Someone putting coins into a piggybank]

01:36

celebs have gone bankrupt trying to be um you know more clever than the IRS and

01:42

yeah good luck with that... So payroll deductions are mostly about

01:46

taxes but there are other things that get deducted from your paycheck

01:50

things like IRA contributions ie retirement or savings pension deductions [List of other taxes deducted]

01:55

that are tax deferred, deductions are taken for Social Security

01:59

you know like good luck ever getting that money back and they also include

02:02

deductions for insurance pension contributions, child support, union and

02:07

uniform dues like seriously there are deductions for uniforms and these

02:11

deductions fall into two flavors government tax deductions or mandatory ones all of [Ice cream cone with mandatory deductions written on it]

02:16

the others are quote voluntary unquote or at the behest of the employer and the [Other cone with voluntary written on it]

02:21

employee but in the realm of government payroll deductions the mandated ones

02:25

include the taxes on Medicare Social Security and federal income like you're

02:29

being taxed to pay for other people as well

02:32

but then voluntary deductions so yeah there are things like the 401k plan [List of mandatory and voluntary deductions]

02:36

supplemental insurance plans you might want child support for your angry [Two people arguing]

02:40

divorced spouse yeah and other random curveballs for expenses employees might [Woman appears with a baseball in an office]

02:45

you know encounter [The balls hits a man on the head]

Up Next

Finance: What is a Tax Deduction?
102 Views

What is a tax deduction? Tax deductions decrease the amount of taxable income reported so that less tax is owed. For everyday civilians, these dedu...

Finance: What Does "Per Capita" Mean?
1808 Views

What does “per capita” mean? Economic stats are usually described saying “per capita.” This just means per person, so they are given as an...

Find other enlightening terms in Shmoop Finance Genius Bar(f)