Loading the player...

What is a 'Write-Off'

A write-off is a deduction in the value of earnings by the amount of an expense or loss. When businesses file their income tax return, they are able to write off expenses incurred to run the business and subtract them from their revenue to determine their taxable income. For example, if you spent money on dinner to take out a client, a portion of that expense acts as a write-off against your business income because the cost of the dinner is a business-related expense.

BREAKING DOWN 'Write-Off'

Similarly, imagine one of your business clients owes money to you but the client's business declared bankruptcy and became unable to pay the invoice to your company. The uncollectible debt is considered a loss your accountant can write off on your tax return. A write-off is a type of deduction, and in some cases, the words may be used interchangeably. For example, when a self-employed person or small business owner files his income tax return, he often refers to his business write-offs as deductions.

Standard Deductions, Itemized Deductions and Write-Offs

Not every deduction is considered a write-off. In particular, the Internal Revenue Service allows individuals to claim a standard deduction on their income tax return, and most tax filers do not refer to this deduction as a write-off. As of 2016, the standard deduction for a married couple is $12,600, meaning a married couple who files their tax return together may automatically deduct this amount from their income in addition to any other deductions for which they qualify.

In other cases, individuals claim itemized deductions instead of the standard deduction. To itemize their deductions, taxpayers simply add up qualifying expenses and claim the total against their income. Sometimes referred to as write-offs, itemized deductions include interest on mortgages, some medical and dental bills, charitable contributions, disaster and theft losses, and a range of other items.

How Tax Write-Offs Work

Tax-write offs simply lower an individual or business' taxable income, and thus the tax liability. For example, imagine your business earns $100,000 in revenue but spends $50,000 on payroll, utilities, rent, inventory and other operating costs. When you file your income tax return, you report the income and the expenses, and as a result of the write-offs, your taxable business income is only $50,000.

Write-Offs vs. Credits

Credits are sometime confused with deductions and write-offs, and although they lower your tax liability, they work much differently. A tax credit is applied to the tax you owe and used to reduce it, and refundable tax credits can even trigger a tax refund. For example, imagine you owe $10,000 in taxes but are eligible for a $3,000 credit. The credit lowers your tax bill to $7,000. Similarly, if you owe $5,000 in taxes but qualify for a $6,000 refundable tax credit, you receive a $1,000 tax refund.

RELATED TERMS
  1. Deduction

    Any item or expenditure subtracted from gross income to reduce ...
  2. Deductible

    1. The amount you have to pay out-of-pocket for expenses before ...
  3. Tax Deduction

    A deduction from gross income that arises due to various types ...
  4. Schedule A

    Schedule A is a U.S. income tax form that is used by taxpayers ...
  5. Tax Deductible Interest

    A borrowing expense that a taxpayer can claim on a federal or ...
  6. Above The Line Deduction

    Above the line deductions are certain types of deductions that ...
Related Articles
  1. Taxes

    Why You Should Itemize Your Tax Deductions

    This strategy of moving your tax deductable payments and donations to the following year could mean hundreds more on your return.
  2. Investing

    Understanding Write-Offs

    Write-off has different meanings depending on the context in which it is used, but generally refers to a reduction in value due to expense or loss.
  3. Taxes

    An Overview Of Itemized Deductions

    Not taking the standard deduction this year could save you hundreds of dollars.
  4. Retirement

    Top Tax Tips For Retirees

    Filing your taxes during retirement can be just as time consuming as when you were employed. We have some tips to help you out.
  5. Taxes

    5 Overlooked Tax Deductions for Small Businesses

    It's easy for small business owners to miss a few tax write-offs. Here's where to find them.
  6. Taxes

    The Most Overlooked Tax Deductions

    The receipts you cram into your wallet could be replaced with cash come tax season.
  7. Taxes

    Calculating the Mortgage Interest Tax Deduction

    The amount of money you save by paying your mortgage off quickly will far exceed any benefit from the mortgage interest tax deduction.
  8. Taxes

    10 Tax Benefits For The Self-Employed

    Running your own business has both personal and financial perks.
  9. Taxes

    Top 10 Home Business Tax Tips

    If you work for yourself, make sure you are getting the most for your tax dollars.
  10. Taxes

    Top Tax Deductions For Brokers

    If you are paying out of pocket, you can make your business expenses work for you at tax time.
RELATED FAQS
  1. How are write-offs recorded on my tax return?

    Find out how to document your write-offs when filing your tax return, including which forms you must complete for personal ... Read Answer >>
  2. What is the difference between a write-off and a deduction?

    Understand the differences between a tax write-off and a tax deduction. Learn how each one works to reduce income taxes and ... Read Answer >>
  3. What is a negative write-off?

    Understand what a write-off is and what a negative write-off is. Learn about the reasons behind why a company would conduct ... Read Answer >>
  4. How can I tell which of my business expenses count as write-offs?

    Learn the basic concept behind what business expenses can be written off, along with specific examples of some basic and ... Read Answer >>
  5. Which is better for tax deductions, itemization or a standard deduction?

    Each deduction that you claim may result in a decrease in the amount of taxes that you owe. However, whether you receive ... Read Answer >>
  6. How can I make sure I'm ready to file my taxes?

    Whether you file your return yourself, or have it done by a tax professional, you want to make sure you include all your ... Read Answer >>
Hot Definitions
  1. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  2. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  3. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  4. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  5. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  6. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
Trading Center