Understanding Business Tax Write Offs

A tax write off is the same thing as a tax deduction, and if you don’t know what expenses are legitimate deductions on your tax return, you won’t know what you can legitimately write off either. In the case of tax write offs, what you don’t know can be very painful indeed.

Tax write offs are taken by business owners and are items which in normal circumstances might not be allowable deductions but become so when the situation of a business changes.

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Because the amount of taxes a business pays are based on the income it gets, a debt which not been paid, or receivables which never show up can be categorized as bad debts and written off. You have to declare any bad debts but do not have to include them when you calculate your income for your annual return.

Loans: If you have loaned your personal funds to help support your business, you can write them off, even though you may have referred to them as income in order to raise the net worth of your business for borrowing purposes. But they remains loans, not income, and cannot be subjected to tax. And if you’ve taken a business loan from a third party lender, you may be able to get a tax write off on the interest payments.

Pension Plans: If your business has less than a hundred employees and you are providing them with pension benefits, you can get a tax credit and it will be deducted not from your business’ gross income, but directly from the amount of money you owe in taxes. This may not be called a tax write off in the IRS literature, but for all intents and purposes it is.

The government is concerned that social security will not be adequate to fund the retirements of millions of Americans, so it does what it can to encourage businesses to look out for their employees. You’ll help your workers, and the tax credit/tax write off will help your business’ bottom line.

You can also take a tax write off on any state and municipal taxes which your business pays. This write off includes both state and municipal income taxes and state and municipal sales taxes, deducting them from your total taxable income.

Travel Expenses: While the IRS regulations are somewhat vague on the matter, you can claim a tax write off on trips during which you spend more time devoted to business than to pleasure. You can keep records of your transportation costs, like cab fare, air fare, and rental car expenses. If you drive your own vehicle, you can take a write off for the mileage.