In a Nutshell“Tax write-off” is an unofficial term for expenses that you may be able to deduct on your federal income tax return. Although you’ll often see the term used to refer to business expenses, individuals may also be able to “write off” certain deductible expenses to reduce the amount of income they have to pay tax on.
Whether you’re self-employed or work for someone else, you probably have a couple of big expenses every month. Wouldn’t it be great if Uncle Sam could help you out with those costs?
One way the federal government helps taxpayers deal with expenses is by allowing you to reduce the amount of income you pay tax on. This happens by deducting certain expenses when you’re ready to file your federal income tax return.
If you’ve ever heard a friend or business associate mention “writing off” an expense, they’re probably talking about taking a tax deduction for that cost. Legitimate tax write-offs can help you reduce the amount of income you pay tax on, and ultimately the total amount of tax you have to pay.
But it’s important to know what expenses the IRS allows as a write off — and which ones it definitely doesn’t. Keep reading to learn more.
- What is a tax write-off?
- Why is it important to understand tax write-offs?
- What are some common tax write-offs?
- What are some expenses I can’t write off?
- How can tax write-offs affect my taxes?
A tax write-off is a slang term for a tax deduction — it’s not a term the IRS uses. In other words, any expense that’s deductible on a business or individual tax return could be considered a tax write-off. But it isn’t as simple as the government paying you back for your expenses.
Instead, a tax write-off is an expense you can partially or fully deduct from your taxable income, reducing how much you owe the government. If you’re due a tax refund, the government is giving you back the amount of tax you overpaid based on your tax liability. If you still owe though, tax write-offs can help lower your tax bill.
How much are tax write-offs worth?
Multiple factors determine how much a tax write-off is worth to you.
For example, if you make cash donations to a qualified charity, you may be able to reduce your taxable income by the amount of your contributions, as long as that amount isn’t more than 60% of your adjusted gross income. And if you’re a business owner, you may be able to deduct expenses that are both ordinary and necessary to run your business.
But in some cases, the amount you can write off may be limited. For example, if you donate a car to your church, your current-year deduction may be limited to 20% or 30% of your AGI. Learn more about adjusted gross income.
In other situations, it may not make sense for you to take a deduction, even if you’re eligible for it. For example, if your total itemized deductions are less than the standard deduction amount for your filing status, you may choose the standard deduction instead.
And some write-offs are available to businesses but not individuals. For example, if you’re self-employed and use part of your home regularly and exclusively as your principal place of business, you may be able to take a home office deduction. But you can’t take a home office deduction if you’re an employee working for someone else — not even if you work exclusively from home.
Tax write-offs can reduce your taxable income, which in turn can reduce your federal income tax obligation. Understanding which expenses are deductible might help you avoid leaving money on the table at tax time.
And learning about the rules and limitations of certain tax write-offs can help you decide whether or not to claim them. For example, individual taxpayers can write off several expenses as itemized deductions, including qualified medical and dental expenses, charitable contributions, home mortgage interest and more.
But if the standard deduction for your filing status exceeds the total of your deductible expenses for the tax year, you might get a better tax benefit from taking the standard deduction than trying to itemize.
Not everyone qualifies for every tax write-off, but here are some common deductions you might qualify for.
- Business expenses — If you’re running a business, you’re allowed to write off certain expenses that are ordinary and necessary, like interest, rent, business use of your home or car, employees’ pay and more.
- Mortgage interest — You can write off the interest you pay on the first $750,000 of home indebtedness ($375,000 if you’re married filing separately) on homes purchased after Dec. 15, 2017, but before Jan. 1, 2026. For a mortgage that predates that cutoff, you can deduct interest on up to $1 million ($500,000 for those married filing separately). Deductible interest includes interest paid on home equity loans and lines of credit if they’re used to buy, build or substantially improve the home used to secure the loan. You’ll have to itemize deductions to take this write-off.
- Student loan interest — If you made payments on a qualified student loan and have a modified adjusted gross income under a certain amount, you may be able to write off up to $2,500 of the interest you paid on the loan. You don’t have to itemize your deductions to take the student loan interest deduction.
- Medical and dental expenses — You can write off qualified dental and medical expenses that exceed a certain percentage of your adjusted gross income, as long as you’re itemizing your deductions.
- Charitable contributions — If you’ve made contributions to a qualified charitable organization, you may be able to write off the amount you donated up to 60% of your adjusted gross income in cash contributions or up to 50% of your adjusted gross income in noncash contributions. This is an itemized deduction.
- Traditional IRA contributions — If you’ve saved money in a traditional IRA and have a modified adjusted gross income under a certain amount, you may be able to write off those contributions up to $6,000 (or $7,000 if you’re age 50 or older). You can take this write-off even if you take the standard deduction rather than itemizing. Learn more about IRA contributions.
- Health savings account contributions — If you qualify to contribute to an HSA, you can write off contributions that you or someone other than your employer makes to the account. You don’t need to itemize deductions to write off this expense. Learn how to make your HSA work harder for you.
As you learn about these and other tax write-offs, consider how they might apply to your specific tax situation and expenses you’ve incurred throughout the year.
Of course, you’ll have yearly expenses that don’t qualify as tax write-offs. And even legitimate write-off categories may exclude certain expenses from being tax deductible.
Here are some expenses you can’t deduct.
- Child support
- Alimony paid on divorce agreements entered into after Dec. 31, 2018
- Political contributions
- 529 contributions may be deductible on state returns
- Roth IRA contributions
- Moving expenses (if you’re not in the military)
Additionally, some deductions exclude certain types of costs. For example, while there is a deduction for medical and dental expenses, you generally can’t take it for cosmetic surgery, though there are some exceptions. And you can’t take a charitable donation deduction for money you give to an individual.
There’s a lot to consider when writing off expenses on your tax return. Legitimate tax write-offs can reduce how much you owe and may even help you qualify for a bigger tax refund.
But falsely claiming or misstating a deduction can add up to reporting the wrong total tax obligation on your tax return. And not paying all the tax you owe on time could leave you owing even more — and facing interest and penalties on the unpaid amount.
Before you write off any expense on your federal income tax return, it’s important to understand what you can deduct and the rules for claiming a deduction.
A tax write-off is just another name for a tax deduction. Deductions can help you reduce the amount of your income that’s subject to federal income tax, which can help lower the amount of tax you owe.
But it’s important to make sure you meet all the qualifications for a deduction before you try to claim it on your tax return. The IRS can disallow write-offs if it determines the attempted deduction doesn’t follow the tax code. In fact, padding deductions or expenses routinely makes the IRS “Dirty Dozen” list of tax scams that taxpayers should avoid.