What’s a “Write-Off”?

Disclaimer: Tax rates and rules change each year so please use this as a general guideline and please check with your accountant/CPA.

One of the most common questions we hear from new and even experienced business owners is, "what is a business write off?”

Other ways we hear this question are:

• What can I write off?

• What does a write off mean?

• Can I write off [fill in the blank with everything you can imagine]?

• What’s the difference between a business write off and business expense? (Its the same thing, different verbage)

Let us briefly answer the question of “what is a business write off?”

Per the IRS, "to be deductible, a business expense must be both ordinary and necessary.

An ordinary expense is one that is common and accepted in your industry. 

A necessary expense is one that is helpful and appropriate for your trade or business."

“But Paul and Kat, what the heck does that even mean?” We’ll write another article to dive into that.

We think one of the biggest underlying questions business owners have is: “Why should I care about business write offs?”

Refer to the image below on how a business owner can get roughly 30%+ off on the purchase of a laptop by reducing their end of year tax bill.

Disclaimer: These numbers are estimates that doesn't factor in further variables such as credits, estimated tax penalties, state taxes, taxes withheld, etc. The numbers have also been overly simplified for this exercise with the goal of explaining how a "write-off" impacts your finances/taxes with real 2021 tax rates. Tax rates also change by your taxable income and your filing status.

But don’t take our word for it. You can fact check us at https://www.irs.gov/

• For a list of tax write offs for sole proprietors or single member LLCs, search for “Schedule C”

• For self employment tax instructions, search for “1040 SE”

• For federal tax instructions, search for “1040”