15 Common Write-Offs You Can Deduct From Your Taxes

Tax write-offs can help you recover some of the necessary costs that come with running a small business. Before filing your tax return this year, consult with an accountant to learn more about which itemized deductions you can make — your bottom line will thank you. You’ll then submit your finished Schedule C form with your other small business tax documents. Taken together, these documents help determine if you’ll receive an income tax return or if you owe money to the federal government (or, for that matter, to your state or local governments).

A few credits are refundable, which means if you owe $250 in taxes but qualify for a $1,000 credit, you’ll get a check for the difference of $750. These deductions are subtracted from your gross income to determine your adjusted gross income, or AGI. If you qualify, you can take them regardless of whether you itemize or take the standard deduction. Your AGI is important because tax write off meaning it is the starting point for calculating your tax bill and also the basis on which you might qualify for many deductions and credits. The child tax credit, or CTC, is a tax break for families with children below the age of 17. The 2023 child tax credit (taxes filed in 2024) could get you up to $2,000 per child, with $1,600 of the credit being potentially refundable.

Taxes and licenses

Additionally, you should always consult with an accountant for professional tax-filing advice specific to your business. Keep in mind that any education costs that would qualify you for a new career, or costs related to education outside of the realm of your business, don’t qualify as business tax deductions. One of the simplest ways to reduce your income tax bill is to ensure you’re claiming all of the tax deductions available to your small business. Well, a write-off is any legitimate expense that can be deducted from your taxable income on your tax return. For many, this is the trickiest part of filing their taxes, particularly because there is a fine line between which expenses are deductible and which ones are not. If you are still confused, or if you just want to learn more, take a look at the information below.

For 2023 (taxes filed in 2024), the credit ranges from $600 to $7,430, depending on how many kids you have, your marital status and how much you made. A tax write-off is a business expense resulting from the reduction in the value of an asset. It’s an accounting maneuver that allows a business to reduce its taxable income, resulting in a lower tax liability at the end of the year that the write-off is taken. For freelancers, the most effective way to save on taxes is by taking advantage of tax credits and the many tax deductions they qualify for. Write-offs work much the same as when an individual itemizes their taxes. Indeed, as noted above, some financial outlets use the term “write-off” interchangeably as a concept for both business and personal taxes.

What exactly is a tax deduction?

Some of these are directly related to running a business, and some are more personal deductions that a small business owner should be aware of. Some tax write-offs also come in the form of non-refundable credits, which reduce the amount of tax you owe. Tax write-offs are beneficial to you as a taxpayer because they can save you money on your tax bill. Write-downs and write-offs are two ways that businesses account in their financial statements for assets (including physical assets and outstanding credit balances) that have lost value. Write-offs are the more severe and final of the two, indicating that the company believes the asset to be worthless. A tax credit is a dollar-for-dollar reduction in your actual tax bill.

Additionally, adjusting your business’ taxable income may change which loan amounts you qualify for. Again (we really can’t stress this enough), make sure to talk to a CPA, tax advisor, or small-business banker to discuss your specific situation. In fact, the IRS provides thorough instructions to help small businesses write off as many qualifying expenses as possible. In general, and with an accountant’s guidance, you can and should write off as many expenses you can. A tax write-off is different from an accounting or business write-off, which refers to the process of removing an asset from your books when it loses value.

How Do You Apply a Write-Off

If they refuse to pay, you may eventually give up on collecting the debt. In that case you would report the $10,000 on your taxes as a loss. When a business reports its income, losses and total profits, it does so through the system of revenue and write-offs. Revenue is the amount of money that a business makes from all sources over the course of the year. Losses refer to the money that business spends on all qualified expenses in that same time period.

• Write-offs are the more severe and final of the two, indicating that the company believes the asset to be worthless.
• With NerdWallet Taxes powered by Column Tax, registered NerdWallet members pay one fee, regardless of your tax situation.
• Starting with 2020 returns, taxpayers can claim up to $300 of cash contributions as an “above-the-line” deduction on Form 1040.
• If you use a home office for your business, you may be able to deduct a portion of your housing expenses against business income.
• The business will debit an expense account and credit the asset account to balance its books.

The credit allows for a dollar-for-dollar reduction on the amount of taxes owed. The expenses can include tuition, fee payments and required books or supplies for post-secondary education for yourself, spouse or dependent child. The credit isn’t refundable, which means it can be used to pay any taxes you owe, but you can’t receive any of it as a refund. The lifetime learning credit allows people to claim a tax credit for taking classes at a community college, university or other higher education institution. The maximum amount of expenses you can deduct is up to $10,000 for an unlimited number of years.

Tax write-off FAQ

If that person is in a 25% tax bracket, the tax due would be lowered by $25. Itemized deductions let you cut your taxable income by taking any of the hundreds of available tax deductions you qualify for. The mortgage interest tax deduction is touted as a way to make homeownership more affordable. It cuts the federal income tax that qualifying homeowners pay by reducing their taxable income by the amount of mortgage interest they pay. Some business expenses may be limited or restricted when it comes to tax write-offs.

However, even if you’re self-employed, you can’t write off the cost of medical bills. Instead, individuals, including sole proprietors, must deduct medical expenses on their personal taxpayer forms. If you deduct $8,000 in tax write-offs, you lower your taxable income to $42,000, lowering your tax rate to 15 percent. Even if you are already in the lowest income tax bracket, your taxable income is used to calculate your tax liability.