12 Common Tax Write-Offs You Can Claim On Your Next Return
Updated: Oct 26, 2022, 3:41pm
Taxpayers may be able to take advantage of numerous deductions and credits on their taxes each year that can help them pay a lower amount of taxes—or receive a refund from the IRS.
You may be able to write off the following twelve common write-offs, which include both tax credits and deductions. Additionally, you may be entitled to write-offs on your state taxes, so check your state tax department’s website to see if you qualify.
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1. property taxes.
Property taxes may be deductible if you itemize, but a limit comes into play.
Under a massive tax overhaul that was signed into law in 2017, deductible state and local income taxes (SALT) , including property taxes, are capped at $10,000.
The limit is scheduled to last through the 2025 tax year, unless Congress extends it.
2. Mortgage Interest
The interest you pay for your mortgage can be deducted from your taxes. The write-off is limited to interest on up to $750,000 ($375,000 for married-filing-separately taxpayers) of mortgage debt incurred after Dec. 15, 2017.
3. State Taxes Paid
Again, you can deduct state income taxes that are paid, but the write-off is limited to up to $10,000, which includes all deductible state and local taxes.
4. Homeowner Deductions
You can deduct mortgage insurance premiums , mortgage interest and real estate taxes that you pay during the year for your home.
5. Charitable Contributions
Generally, you can deduct charitable contributions of cash totaling up to 60% of your adjusted gross income, or AGI. Donations of items or property also are considered deductible charitable contributions.
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6. medical expenses.
Medical and dental expenses qualify for a tax deduction, though you can deduct only the costs that exceed 7.5% of your AGI .
To claim medical-related expenses on your 2022 tax return next year, they must have been paid in 2022, unless they were charged to a credit card. In those cases, you can deduct the expenses in the year you charged the card, not necessarily the year in which you repaid them.
Trips to your doctor’s office or hospital appointments qualify for medical mileage. For 2022, you can deduct 18 cents a mile for travel you made for medical purposes through June 2022. The amount has increased to 22 cents a mile from July 1, 2022, through the end of the year.
7. Lifetime Learning Credit Education Credits
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. However, the top credit you can receive per tax return is worth $2,000.
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 amount of your credit depends on your income. You should check IRS Publication 170 to determine the income qualifications.
Note: This credit can’t be claimed in the same year as the American opportunity tax credit using the same expenses.
8. American Opportunity Tax Education Credit
The American opportunity tax credit offers a tax break for the first four years of higher education. The maximum annual credit is $2,500 per eligible student. If the amount of taxes you owe is zero because of this credit, the IRS says 40% of any remaining amount of the credit (a maximum of $1,000) can be refunded to you.
The credit is worth 100% of the first $2,000 of qualified education expenses paid for each eligible student and 25% of the next $2,000 of qualified education expenses.
“If you, your spouse, or child are in school, make sure to look deeper into education credits,” says Daniel Fan, managing director and head of wealth planning at First Foundation Advisors, an Irvine, California-based financial institution. “For students who are in the first four years of college, this credit could provide greater tax savings than the lifetime learning credit.”
Qualifying expenses include tuition, fee payments and required books or supplies for post-secondary education for yourself, spouse or dependent child.
The amount of your credit is determined by your income. This credit can’t be claimed the same year the lifetime learning credit is claimed.
9. Retirement Credits
The contributions you make to a retirement plan such as a 401(k) or a traditional or Roth IRA give you a tax credit of 50%, 20% or 10%, depending on your adjusted gross income that you report on Form 1040. Any rollover contributions do not qualify for the credit.
The maximum contribution amount that qualifies for the credit is $2,000 ($4,000 if married filing jointly), making the maximum possible credit $1,000 ($2,000 if married filing jointly). The IRS has a chart to help calculate your credit.
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10. IRA Contributions
The maximum contribution for 2022 in a traditional or Roth IRA is $6,000, plus another $1,000 for people who are 50 years old or more. Your contributions to a traditional IRA are tax-deductible.
11. Self-Employed Health Care Premiums
If you’re self-employed, you can deduct 100% of the health insurance premiums you pay monthly for yourself, your spouse and your dependents, whether or not you itemize deductions, says Robert Charron, a CPA in charge of the tax department at Friedman, a New York-based accounting firm.
If you have kids under 27 at the end of 2022, you can also deduct their premiums—even if they aren’t dependents.
However, you can’t claim this deduction if you’re eligible to participate in a subsidized health plan from an employer for either yourself, your spouse, dependents or kids under 27.
12. Student Loan Interest
Student loan interest can be written off your taxes, but the maximum interest you can deduct is $2,500. The amount you may write off depends on your income. Review the previously mentioned IRS Publication 970 for more information.
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What Is the Standard Deduction?
The standard deduction is an automatic deduction from your taxable income that you can receive without any itemizing.
Before deciding to claim the standard deduction, it’s a good idea to compare your standard deduction amount with your total itemized deductions.
For the 2022 tax year (meaning the taxes you’ll file in 2023), the standard deduction amounts are: :
- $12,950 for single and married filing separate taxpayers
- $19,400 for head of household taxpayers
- $25,900 for married taxpayers filing jointly or qualifying widow(er)s
Tips for Writing Off Your Expenses and Charitable Contributions
Keeping a good record of your income and deductible expenses in a spreadsheet throughout the year can make filing taxes a lot quicker and easier.
“Preparing and organizing everything for your taxes can seem like a daunting task, but a lot of people come across the same common mistakes,” Fan says. “Don’t forget to always include all sources of income, make sure you are looking for and including all possible deductions, and understand the difference between a deduction and a credit.”
Some common mistakes people make include:
- Not listing all income
- Not accounting for all possible deductions
- Not taking advantage of contributions to retirement accounts to increase tax-deductible contributions.
If you are filing taxes with several deductions, start by gathering all the appropriate paperwork, such as Form 1098 for mortgage interest rate deductions. For other deductions, which are based on expenses or contributions, keep accurate records.
“If you itemize your deductions, then keep track of qualified medical expenses, charitable contributions made, or any other deductions which can be itemized,” says Fan. “If you are likely to take the standard deduction, then record keeping will not be as important.”
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Ellen Chang is a freelance journalist who is based in Houston and writes articles for U.S. News & World Report. Chang previously covered investing, retirement and personal finance for TheStreet. She focuses her articles on stocks, personal finance, energy and cybersecurity. Her byline has appeared in national business publications, including USA Today, CBS News, Yahoo Finance MSN Money, Bankrate, Kiplinger and Fox Business. She is a proud graduate of Purdue University and a lover of random acts of kindness, volunteering and cats and dogs. Follow her on Twitter at @ellenychang and Instagram at @ellenyinchang.
What Is a Write-Off and How Do You Take One?
A tax write-off is how businesses account for expenses, losses and liabilities on their taxes . Write-offs are a specialized form of tax deduction . When a business spends money on equipment or operating expenses, it can deduct that spending from its taxes. The same is true when a business loses money on uncollected debts and lost assets. With write-offs, businesses can lower their tax burden and help make their operations more affordable. Here’s how it works.
For more help with how you could use write-offs, consider working with a financial advisor .
What Is a Write-Off?
A write-off is another term for a tax deduction on business income.
When businesses report their taxes they do so, broadly speaking, in two sections. First, the business calculates its operating profits for the year. It reports all income , losses and the resulting total profits. Second, it calculates the taxes that it owes based on those profits.
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.
Those losses are the business’s write-offs, and they reduce its taxable income for the year in the same way that a tax deduction does for individuals.
It’s important to understand that a write-off is a tax deduction, not a tax credit . When a business writes off expenses it lowers its taxable income and, as a result, the taxes it pays. This is not a dollar-for-dollar tax rebate and it only generates a refund if you paid more in estimated taxes than you owe at the end of the year. That said, write-offs can significantly lower a business’ taxes, making them very valuable for anyone who pays taxes on operating profits.
What Can You Claim as a Write-Off?
A business can claim write-offs for all legitimate, qualifying business expenses as defined by the IRS. Generally this includes all spending that is both necessary and relevant to running your specific business.
Understanding exactly which expenses a business can write off can be difficult. This is a complicated area in which the IRS has given precise, but lengthy and dense, instructions. Not every business can claim the same expenses and not every expense can count. Ultimately the best way to know if you’re on solid ground with your write-offs is to hire a qualified tax professional who can guide you through the process of categorizing your income and expenses.
That said, broadly speaking, the IRS allows four main categories of write-offs:
Debt Payment and Other Financial Expenses
If you made payments on debt , contracts or had other expenses for lending and financial products, the IRS often will consider this a qualifying business expense. This can also apply to interest payments on qualifying loans. For example, say your business rents a storefront. Your business may be able to deduct those rent payments from its income as a business write-off.
Business Expenses, Purchases and Operating Costs
This is the biggest category for almost every business.
The money you spend running your business can often be a write-off. This can apply to a wide variety of expenses. The two most common types of expenses are purchases — for example, if you buy desks and computers — and operating costs, for example, payroll and utility bills. These are the costs directly associated with running your business and as a result you can often deduct them from the business’s income.
Uncollected Debts, Liabilities and Losses on the Sale of Investment Property
This practice is known as “writing off a loss.” It applies to when you have assets destroyed or give up on collecting money someone owes you. For example, if your business owns a car worth $10,000 and it gets destroyed, you might write that vehicle off on your taxes. The same is true if someone owes your business $10,000 in payments. 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.
Selling an investment property at a loss means accepting less than what you initially paid for it. Generally, when a rental or investment property is sold at a loss your losses can be deducted from ordinary income. Again, this is the income most people report on a Form 1040 each year when they file their taxes.
Finally, as with individuals, the IRS allows businesses to deduct money that they donate to qualifying charities. You cannot always deduct charitable donations, and you cannot necessarily deduct all the money you donate, so be sure to check carefully before you plan your taxes around a charitable donation .
How Do You Apply a Write-Off
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. You apply write-offs when calculating your profit for the year on your taxes. Different entities calculate their income and losses using different forms based on their specific type of business, but all need to make a basic reporting of how much money they took in and spent. For example, self-employed individuals and sole proprietors report their income, losses and profits using the tax form Schedule C.
Wherever you calculate income, losses and profit is where you claim your tax write-offs. In this section, you list all business expenses that qualify as write-offs. It’s best to do this with specificity, attaching an appendix to your taxes if necessary. It’s also absolutely critical to keep the documentation for all write-offs that you intend to claim. This is a complicated area that often breeds confusion. If you make a mistake, receipts can be the difference between a quick check-in from the IRS and a full-blown audit .
Deduct your qualifying expenses from your business’ revenue and report the total as your business’ taxable profit for the year. Note that you can’t always claim all business spending as a write-off. Even if you felt an expense was necessary, you can only claim deductions that the IRS specifically allows.
For a business to claim a write-off it must apply these expenses to its revenue. Write-offs do not apply to third-party income or other revenue streams unrelated to the business itself. This comes up most often for individuals who file taxes as a business. You can only take a tax write-off on earnings related to those expenses.
Say that you have a W-2 job as an accountant and also earn money as a self-employed consultant. When you file your taxes, you would file a Schedule C with the income, losses and profits from your consultancy. There, you could deduct all of the consultancy’s permissible expenses. But you can only deduct those expenses from income that you earned as a consultant. You can’t claim them as deductions from your job as an accountant or from your combined annual income. Business deductions can only apply to business income.
The Bottom Line
A tax write-off is a deduction that applies to business income. It’s when you list all of the expenses and other losses that your business incurred over the year, which reduces your business’s overall taxable income.
Tips on Taxes
- Individuals and the self-employed are the ones most likely to need help calculating their write-offs. Here are some of the most common , and most valuable, tax deductions for the self-employed.
- A financial advisor can help you get tax write-offs right. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now .
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"Above-the-Line" Deductions for Your 2021 Tax Return
If, like most people, you claim the standard deduction instead of itemized deductions on your return, there are still many other tax deductions available that could save you a lot of money.
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Relatively few Americans itemize deductions on their tax return. You can either claim the standard deduction or itemized deductions on your return — but not both. And, of course, you always want to pick the higher amount, which is the standard deduction for the vast majority of people.
That means most Americans can't claim some very well-known tax breaks. No deduction for medical expenses. Zero tax savings for mortgage interest payments. Nothing for state and local taxes, either. If you claim the standard deduction, you can't claim any of these popular write-offs.
But there are several other popular tax deductions that people taking the standard deduction can still claim on their tax return. Most of these so-called "above-the-line" deductions have no income limits, so anybody can claim them on Schedule 1 (opens in new tab) of their Form 1040. Plus, because these deductions will lower your adjusted gross income (AGI), you may be able to claim other tax breaks that have AGI-based income limits. (They're called "above-the-line" deductions because you record them on the 1040 form above the line showing your AGI.) So, if you're claiming the standard deduction and want to lower your tax bill, keep reading to see if you qualify for any of these common money-saving write-offs.
2021 Tax Returns: What's New on the 1040 Form This Year
Contributing to a traditional individual retirement account (IRA) is a win-win move that lets you boost your retirement savings and trim your tax bill at the same time (assuming you have earned income). For 2021, the contribution limit is $6,000 ($7,000 if you're 50 or older) or your taxable compensation for the year, whichever is less. Plus, if you (and your spouse, if you're married) don't have a retirement plan at work, every dollar of that can be knocked off your taxable income. If you're covered by a retirement plan at the office (or your spouse is) then that deduction might be limited if your income exceeds certain levels. Most people have until April 18, 2022, to make deductible IRA contributions for the 2021 tax year (residents of Maine and Massachusetts have until April 19, and certain natural disaster victims have until May 16 ).
For 2022, the contribution limits remain the same as they were for 2021. However, the income limits for the deduction are slightly higher. You can make deductible IRA contributions for the 2022 tax year until April 18, 2023.
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Hsa and archer msa deductions.
Are you funding a health savings account (HSA) in conjunction with a high-deductible health plan? If so, that's a smart move.
You get an above-the-line deduction for contributions to the HSA, assuming you made them with after-tax money. If you contribute pre-tax funds through payroll deduction on the job, there's no double-dipping — so no write off. In either case, you need to file a Form 8889 (opens in new tab) with your return.
The maximum contribution for 2021 was $7,200 for family coverage and $3,600 if you're an individual (they're $7,300 and $3,650, respectively, for 2022). If you're 55 or over at any time in the year, you can contribute (and deduct) another $1,000.
People who have an Archer medical savings account (MSA) can also deduct contributions to the account. The deduction is limited by a portion of the related high deductible health plan's (HDHP's) annual deductible, and your compensation from the employer maintaining the HDHP.
Note that contributions can't be made to an Archer MSA for you after 2007 unless:
- You were an active Archer MSA participant before 2008; or
- You became an active Archer MSA participant after 2007 because of coverage under an employer's HDHP.
Use Form 8853 (opens in new tab) to calculate the Archer MSA deduction.
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Deductions for the Self-Employed
If you work for yourself, you have to pay both the employer and the employee share of Social Security and Medicare taxes — a whopping 15.3% of net self-employment income. But at least you get to write off half of what you pay as an adjustment to income. Use Schedule SE (opens in new tab) to calculate this deduction.
You can also deduct your contributions to a self-directed retirement plan such as a SEP , SIMPLE , or qualified plan. Special rules for computing the maximum deduction apply to self-employed people who contribute to their own SEP. If your SEP contributions exceed the maximum deduction amount, you can carry over and deduct the difference in later years.
Also deductible as an adjustment to income: Health insurance costs for the self-employed (and their families) — including Medicare premiums and supplemental Medicare (Medigap), up to your business' net income. You can't claim this deduction if you're eligible to be covered under a health plan subsidized either by your employer (if you have a job as well as your business) or your spouse's employer (if he or she has a job that offers family medical coverage).
( Note that self-employed people operating as a sole proprietor may also be able to claim the 20% deduction for qualified business income. It's not considered an "above-the-line" deduction, since it's reported on the 1040 form after AGI is calculated. However, it can put a significant dent in your tax bill if you can satisfy all the requirements. But it won't help you qualify for other tax breaks by lowering your AGI. )
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Student Loan Interest Deduction
Up to $2,500 in student loan interest (for you, your spouse or a dependent) can be deducted on your 2021 tax return if your modified AGI is less than $70,000 if you're single or $140,000 if you're married and filing a joint return. The deduction is phased out above those levels, disappearing completely if you earn more than $85,000 if single or $170,000 if filing a joint return.
You can't claim this deduction if you're married, and you and your spouse are filing separate tax returns. You're also disqualified if someone else (e.g., a parent) claims you as a dependent on their tax return.
The loan must have been used to pay qualified higher education expenses, such as tuition, fees, room and board, books and supplies, and other related expenses. The expenses must also be for education in a degree, certificate, or similar program at a college, university, or qualified vocational school.
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You may be able to deduct alimony you pay to a former spouse as long as your divorce agreement was in place before the end of 2018 and the monetary payments are spelled out in the agreement. The deduction disappears if the agreement is changed after 2018 to exclude the alimony from your former spouse's income.
You must also report your ex-spouse's Social Security number, so the IRS can make sure he or she reports the same amount as taxable income. (Child support, however, is not deductible.)
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Deductions for Business Expenses
The 2017 tax reform law did away with almost all employee deductions that were taken on Schedule A by itemizers. But in certain lines of work, under certain conditions, you can still write off some of your costs with an "above-the-line" tax deduction. Here are those adjustments to income, which are now found on Schedule 1 (Form 1040):
- You're a schoolteacher and you buy supplies for your classroom. Educators can write off up to $250 each year of classroom expenses if they teach kindergarten through 12th grade and put in at least 900 hours a year on the job. Expenses paid or incurred in 2021 for personal protective equipment, disinfectant, and other supplies used to prevent the spread of COVID-19 are included. You don't have to be a teacher to claim this break. Aides, counselors and principals may claim it if they have the receipts to back it up. But parents who home-school their children are out of luck.
- You're in the National Guard or military reserves and you travel to drills. You must travel more than 100 miles from home and be away from home overnight. If you qualify, you can deduct the cost of lodging and meals (following the federal per diem schedule) plus an allowance for driving your own car. For 2021 travel, the rate is 56 cents per mile, plus what you paid for parking, fees and tolls. (For 2022, it's 58.5 cents for each mile.)
- You're a performing artist making less than $16,000 (sorry Beyoncé, not for you). The IRS will expect you to show that at least two employers paid you $200 each for your services and that the expenses you intend to deduct are more than 10% of what you made from performing. Note that the IRS specifies that you need to be an employee receiving wage income .
- You're disabled, have a job, and incur expenses that allow you to work. Here's an example from the IRS: You're deaf and use a sign-language interpreter during meetings while you're at work — that's a deductible expense.
- You're a "fee-basis" public official and want to write off job expenses. This does not mean people employed by any government. Rather, it's for individuals who perform a public function and are paid directly by the people they serve (e.g., a justice of the peace). If you meet that definition, you can deduct your work-related expenses.
Unless you're an educator deducting classroom expenses, file Form 2106 (opens in new tab) with your tax return if you're claiming one of these deductions.
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Early Withdrawal Penalties
Did you break into a certificate of deposit (CD) early and get slapped by a bank penalty? Bank penalties can vary widely, but one thing is constant: You can deduct the penalty, no matter how lenient or how stiff, as an adjustment to income.
A Form 1099-INT (opens in new tab) or Form 1099-OID (opens in new tab) from the bank will show the amount of any penalty you paid.
( Note that the additional 10% tax on early distributions from qualified retirement plans doesn't qualify as a deductible penalty for withdrawal of savings. )
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Moving Expenses Deduction (If You're in the Military)
The 2017 tax reform new tax law killed the moving expense deduction, but with one significant exception: If you're an active member of the U.S. Armed Forces, the cost of any move associated with a permanent change of station is still deductible if the move was due to a military order. This includes a move from your home to your first post of active duty, a move from one permanent post of duty to another, and a move from your last post of duty to your home or to a nearer point in the United States.
You can write-off the unreimbursed costs of getting yourself and your household goods to the new location. If you drove your own car for a move in 2021, deduct 16 cents per mile plus what you paid for parking and tolls (18 cents per mile for 2022). (Use Form 3903 to tally your moving deductions.)
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Charitable Contributions Deduction
While technically not an "above-the-line" deduction because it's reported on Form 1040 after your AGI is set, people who take the standard deduction on their 2021 tax return can deduct up to $300 of cash donations made to charity last year (up to $600 for joint filers). Donations to donor advised funds and certain organizations that support charities aren't deductible. Contributions carried forward from prior years and most cash contributions to charitable remainder trusts are excluded, too.
Since this deduction is recorded on your tax return after your AGI is calculated, it won't lower your AGI. So, it won't help you qualify for other tax breaks. Nevertheless, it's a nice little tax break that millions of Americans can claim.
Unfortunately, though, the deduction expired at the end of 2021. So, while you can claim it on your 2021 tax return that's due this year, you won't be able to claim it on the tax return you'll file next year.
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There are several other "above-the-line" deductions that aren't very common, but nonetheless are allowed and can save you money if you qualify. Here's a quick rundown of the "other" deductions that a relatively few number of people can take on Schedule 1 (opens in new tab) to lower their AGI:
- Attorney fees and court costs for lawsuits involving certain unlawful discrimination claims (limited to the extent of gross income from the lawsuit) or paid in connection with a whistleblower award from the IRS (limited to the award includible in gross income);
- Contributions to Section 501(c)(18)(D) pension plans;
- Contributions by certain chaplains to Section 403(b) retirement plans;
- Expenses reported to you as a beneficiary on the final return of the estate or trust if reported as Section 67(e) expenses on Schedule K-1 (Form 1041), box 11, code A;
- Foreign housing expenses (file Form 2555 (opens in new tab) );
- Jury duty pay if you gave the pay to an employer because your salary was paid while you served on the jury;
- Olympic and Paralympic medals and U.S. Olympic Committee prize money (nontaxable amount of the value);
- Reforestation amortization and expenses;
- Rental-related expenses if you rent personal property for profit and you aren't in the business of renting the property (only expenses related to taxable income); and
- Supplemental unemployment benefit repayments.
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In his current role as Senior Online Editor, David edits and writes a wide range of content for Kiplinger.com. With more than 20 years of experience with Kiplinger, he has worked on and written for a range of its publications, including The Kiplinger Letter and Kiplinger’s Personal Finance magazine. He is a co-host of Your Money's Worth , Kiplinger's podcast and has helped develop the Economic Forecasts feature.
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Dear Tax Talk, I’m lending a friend $30,000 to start a small business. We have a promissory note that states the terms of repayment and interest.
As far as taxes go, can I write off the full $30,000 in the first year against short-term capital gains? I know this is true for bad debt, but what if the payments are made on time (which hopefully will be the case)?
More On Tax Write-Offs:
- Write off unpaid business loan
- Standard deduction amounts
- 10 overlooked tax breaks
I would prefer to write off the whole amount in year one and pay tax on the full monthly payments rather than just paying taxes on interest throughout the life of the loan while slowly regaining the principal. Can I claim a bad debt write-off right away? — Cody
Dear Cody, It seems like you have opposing objectives here. You’d like to get repaid, but you’d rather have an immediate write-off without even trying to get paid. Well, I can tell you the latter won’t happen that easily. To claim a bad debt write-off, you have to go through some hoops.
When you lend money to a friend, you must have a clear intention the loan will be repaid. Otherwise, it would be considered a gift. You cannot take a bad debt deduction for a gift. There cannot be a bad debt unless there is a true creditor-debtor relationship between you and the person or company that owes you the money. This means you should set up some substance to the loan such as invoicing for the loan payments, sending email reminders and charging penalties for late payment. If the loan does go south, you should make genuine attempts to collect the debt such as turning over the matter to an attorney.
Until you determine the debt to be worthless, you cannot claim a deduction. You do not have to get a court judgment to show the worthlessness of the debt if you can show the judgment would be unnecessary — for example, if the debtor were to be worthless, bankrupt or out of business.
For these reasons, you cannot claim the loss at your own choosing.
Ask the adviser
To ask a question on Tax Talk, go to the “Ask the Experts” page and select “Taxes” as the topic. Read more Tax Talk columns.
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What is a write-off definition and examples for small businesses.
A write-off is a business expense that is deducted for tax purposes. Expenses are anything purchased in the course of running a business for profit. The cost of these items is deducted from revenue in order to decrease the total taxable revenue. Examples of write-offs include vehicle expenses and rent or mortgage payments, according to the IRS .
In this article, we’ll cover:
What Is a Write-Off?
Tax write-offs for small business, tax write-off examples.
NOTE: FreshBooks Support team members are not certified income tax or accounting professionals and cannot provide advice in these areas, outside of supporting questions about FreshBooks. If you need income tax advice please contact an accountant in your area .
A write-off is an expense that can be claimed as a tax deduction. Tax write-offs are deducted from total revenue to determine total taxable income for a small business.
Qualifying write-offs must be essential to running a business and common in the business’s industry. A write-off doesn’t need to be absolutely, 100 percent necessary, but it should be considered a normal expense that helps run the business, according to the IRS .
Most business expenses are deductible, either fully or partially. Small business owners try to write-off as many expenses as possible to decrease the amount of tax they need to pay.
A business must be for-profit in order to write-off its business expenses. A “hobby” business that isn’t run to make money can’t deduct its expenses on an owner’s taxes.
Small businesses usually fill out the form Schedule C to deduct business expenses from their taxes.
Read our simple guide to tax write-offs for small business for a complete picture of how write-offs work and what different business structures like sole proprietorships and LLCs can claim.
Small businesses can typically write-off expenses in the following categories:
- Education and Training
- Car and Truck Expenses
- Rent and Lease
- Miscellaneous (bank fees, wages etc.)
- Employee Benefits (such as health insurance)
- Meals and Entertainment
- Office Supplies & Postage
In this section, we’ll look common tax write-offs for sample small businesses. These write-offs are not comprehensive, but give an idea of what different businesses could deduct on their taxes.
A small painting business can claim car mileage as a tax deduction since the workers need to travel for jobs. The owner has a team of five painters and can deduct their wages . Occasionally, the owner needs to hire contract workers for big jobs— contract labor is also deductible. All painting supplies purchased are also deductible. The owner works out of her home office and claims a home office deduction . She can also write-off her business cell phone , as well as the phone she provides to her lead painter. Finally, she claims the cost of her general liability insurance policy.
A graphic designer claims the rent for his home office. His home office is 20 percent of his total living space, so he writes off 20 percent of his rent on his taxes. He pays an accountant to do his taxes every year and writes off the fee. He also writes off advertising costs like his website domain and getting a professional headshot. He travels for a professional development conference and he writes off the cost of airfare and his Airbnb and 50 percent of all meals. Finally, he occasionally meets his clients for meals like coffee or lunch and writes off 50 percent of these expenses on his taxes.
A small legal aid clinic deducts the cost of its lease on equipment like a postage meter, fax machine and printer. They write-off the cost of their professional liability insurance as well as the cost of their employee benefit program and contributions to the employee retirement plan plus employer taxes like payroll tax (FICA). Their small office is mortgaged and the owner writes off the cost of interest on their mortgage as well as real estate taxes and the cost to repair damage to the office. The clinic has a line of credit that was used in an emergency to pay employee salaries and it deducts the interest on that loan . The legal clinic advertises on Facebook and on public transit and writes off these advertising costs.
People also ask:
What Is a Write-Off in Accounting?
Why are assets written off.
In accounting, a write-off happens when an asset’s value is eliminated in the books. This happens when an asset can’t be turned into cash, doesn’t have market value or isn’t useful to a business anymore, according to Accounting Tools .
An asset is written off by transferring some or all of its recorded amount to an expense account. The write-off usually happens all at once instead of being spread over a few accounting periods. This is because a write-off is a one-time event that needs to be dealt with immediately.
A temporary measure is to credit a contra account until the write-off is assigned to a specific category. A contra account’s whole function is offset the balance of another account.
When an asset’s value is reduced instead of eliminated, this is called a write down.
- For example, a client refuses to pay a contractor for a renovation job. After some back and forth, the client agrees to pay 50 percent of the invoice. The contractor allocates half of the invoice’s value to an expense account and leaves 50 percent of the asset’s value on the books.
Write-offs help reduce taxable income, but if an owner gets carried away with using write-offs and write downs this can become fraud.
Assets are written off because they’re no longer of value to a business.
Here are examples of situations where a write-off is necessary for a small business and how it’s handled in the books:
Accounts Receivable Can’t Be Collected
A general contractor has a $2000 invoice outstanding for a small bathroom renovation job. The client hasn’t paid. Finally, the contractor hears the client is bankrupt and unable to pay the bill. Outstanding invoices are categorized under accounts receivable. The contractor debits the category “bad debt expense” by $2000 and credits $2000 to a category called “allowance for doubtful accounts,” which offsets the amount owing in accounts receivable.
Inventory Is of No Use
Perhaps inventory is outdated or it can’t be sold due to an error in manufacturing. The cost of inventory can be added to the category “ cost of goods sold ” or its value can be offset using the obsolete inventory reserve.
A Fixed Asset Is of No Use
Fixed assets are items of value to a company that won’t be used up within a year and are intended for long-term use. A company might buy furniture for their office, however the company downsizes and the owner moves back to a home office. There’s no use for this office furniture. The office furniture’s value has depreciated thanks to wear and tear. So the depreciated value is accounted for and the new value is charged to a loss account.
Pay Advance Isn’t Returned
A new employee is given an advance on their pay as a favor from the owner. The employee unexpectedly quits before earning out their pay and refuses to pay the rest of the advance back. The balance is then shifted to the compensation expense account.
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20 Popular Tax Deductions and Tax Credits for 2023
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Tax deductions and tax credits can be huge money-savers — if you know what they are, how they work and how to pursue them. Here's a cheat sheet. (Want to skip to the 20 popular tax deductions and credits ? Go for it.)
What are tax deductions?
A tax deduction lowers your taxable income and thus reduces your tax liability. You subtract the amount of the tax deduction from your income, making your taxable income lower. The lower your taxable income, the lower your tax bill.
The IRS allows taxpayers to lower their taxable income by choosing either the standard deduction or itemized deductions. Before that, you can also make certain adjustments to your gross income by taking above-the-line deductions in order to arrive at what's called your adjusted gross income.
Contributions to a retirement account, health savings account contributions or student loan interest payments are referred to as "above-the-line" deductions, but it may be easier to think of them as "adjustments" to your income. 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 it is the starting point for calculating your tax bill and also the basis on which you might qualify for many deductions and credits.
Below-the-line deductions, on the other hand, are qualified expenses that are subtracted from your adjusted gross income to help determine your taxable income. The IRS lets you take either the standard deduction or itemize. There are dozens of itemized deductions available to taxpayers and all of them have different rules. Examples of itemized deductions include deductions for unreimbursed medical expenses, charitable donations, and mortgage interest. Whether you choose to itemize or take the standard deduction depends largely on which route will save you more money.
What are tax write-offs?
The IRS doesn't use the term "tax write-offs" anywhere in the Internal Revenue Code, but the phrase has gained popularity as a synonym for "tax deduction" over the years. If you hear someone talking about a tax write-off, they're probably referring to certain qualified expenses — or deductions — that itemizers can take to lower their taxable income. (Note that you'll generally only wind up using itemized deductions if you don't use the standard deduction discussed below.)
What is a tax credit?
A tax credit is a dollar-for-dollar reduction in your actual tax bill. 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. Most tax credits, however, aren’t refundable.
As the simplified example in the table shows, a tax credit can make a much bigger dent in your tax bill than a tax deduction.
How do you claim tax deductions?
Generally, there are two ways to claim tax deductions: Take the standard deduction or itemize deductions. You can’t do both.
The standard tax deduction for 2022 and 2023
The standard deduction basically is a flat-dollar, no-questions-asked reduction in your adjusted gross income (AGI). The amount you qualify for depends on your filing status. Here are the amounts for the standard deduction in the 2022 tax year (taxes filed in 2023) and the 2023 tax year (taxes filed in 2024).
People over age 65 or who are blind get a bigger standard deduction.
Itemizing deductions in 2022 and 2023
Itemizing lets you cut your taxable income by taking any of the hundreds of available tax deductions you qualify for. The more you can deduct, the less you’ll pay in taxes.
Itemizing vs. the standard deduction: How to choose
Here’s what the choice boils down to:
If your standard deduction is less than the sum of your itemized deductions, you probably should itemize and save money. Beware, however, that itemizing usually takes more time, requires more forms ( Schedule A ), and you'll need to have proof that you're entitled to the deductions.
If your standard deduction is more than the sum of your itemized deductions, it might be worth it to take the standard deduction (and the process is faster).
Note: The standard deduction has gone up significantly in recent years, so you might find that it's the better option for you now even if you've itemized in the past. Your tax software or tax advisor can run your return both ways to see which method produces a lower tax bill.
» MORE: Learn more about standard deductions and itemized deductions
What can you deduct from your taxes?
There are hundreds of 2023 itemized deductions and credits out there. Here's a list of the 20 popular ones and links to our other content that will help you learn more.
1. Child tax credit
The child tax credit , or CTC, could get you up to $2,000 per child, with $1,500 of the credit being potentially refundable.
2. Child and dependent care credit
The child and dependent care credit , or CDCC, is meant to cover a percentage of day care and similar costs for a child under 13, a spouse or parent unable to care for themselves, or another dependent so you can work. Generally, it's up to 35% of $3,000 of expenses for one dependent or $6,000 for two or more dependents.
3. American opportunity tax credit
The American opportunity tax credit , sometimes shortened to AOC, lets you claim all of the first $2,000 you spent on tuition, books, equipment and school fees — but not living expenses or transportation — plus 25% of the next $2,000, for a total of $2,500.
4. Lifetime learning credit
The lifetime learning credit lets you claim 20% of the first $10,000 you paid toward tuition and fees, for a maximum of $2,000. Like the American opportunity tax credit, the lifetime learning credit doesn’t count living expenses or transportation as eligible expenses. You can claim books or supplies needed for coursework.
5. Student loan interest deduction
The student loan interest deduction lets borrowers claim up to $2,500 from their taxable income if they paid interest on their student loans.
6. Adoption credit
This item covers up to $14,890 in adoption costs per child. The credit begins to incrementally decrease at certain income levels and completely phases once if your 2022 modified adjusted gross income exceeds $263,410.
7. Earned income tax credit
This earned income tax credit , or EITC, can get you between $560 and $6,935 depending on how many kids you have, your marital status and how much you make. It’s something to explore if your AGI is less than about $59,000.
8. Charitable donations deduction
If you itemize, you may be able to subtract the value of your charitable gifts — whether they’re in cash or property, such as clothes or a car — from your taxable income. Per the IRS, you can generally deduct up to 60% of your adjusted gross income.
9. Medical expenses deduction
In general, you can deduct qualified, unreimbursed medical expenses that are more than 7.5% of your adjusted gross income for the tax year.
10. Deduction for state and local taxes
You may deduct up to $10,000 ($5,000 if married filing separately) for a combination of property taxes and either state and local income taxes or sales taxes. (How the property tax deduction and the sales tax deduction work.)
11. Mortgage interest deduction
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.
12. Gambling loss deduction
Gambling losses and expenses are deductible only to the extent of gambling winnings. So, spending $100 on lottery tickets isn’t deductible — unless you win, and report, at least $100, too. You can’t deduct more than the amount you win.
13. IRA contributions deduction
You may be able to deduct contributions to a traditional IRA , though how much you can deduct depends on whether you or your spouse is covered by a retirement plan at work and how much you make.
14. 401(k) contributions deduction
The IRS doesn’t tax what you divert directly from your paycheck into a 401(k) . In 2022, the contribution limit was $20,500 ($27,000 if you were 50 or older). These retirement accounts are usually sponsored by employers, although self-employed people can open their own 401(k)s.
15. Saver’s credit
The saver's credit runs 10% to 50% of up to $2,000 ($4,000 if filing jointly) in contributions to an IRA, 401(k), 403(b) or certain other retirement plans. The percentage depends on your filing status and income. (How it works.)
16. Health savings account contributions deduction
Contributions to HSAs are tax-deductible , and the withdrawals are tax-free, too, as long as you use them for qualified medical expenses.
17. Self-employment expenses deduction
There are many valuable tax deductions for freelancers, contractors and other self-employed people. (How it works.)
18. Home office deduction
If you use part of your home regularly and exclusively for business-related activity, the IRS lets you write off certain self-employment deductions for associated rent, utilities, real estate taxes, repairs, maintenance and other related expenses.
19. Educator expenses deduction
If you’re a school teacher or other eligible educator, you can deduct up to $300 spent on classroom supplies in 2022.
20. Residential energy credit
The residential energy credit can get you up to 30% of the installation cost of solar energy systems, including solar water heaters and solar panels.
Bonus: Electric vehicle tax credit
The nonrefundable EV tax credit ranges from $2,500 to $7500 for tax year 2022 and eligibility depends on the vehicle’s weight, the manufacturer, and whether you own the car. For tax year 2023 (taxes filed in 2024), the credit is greatly expanded and also includes used vehicles.
When to Write-Off a Claim
Writing off claims can be one of the hardest things that you do in private practice. You have worked hard for that money and you want to make sure that you are capturing every dollar that you can. However there are situations in which you need to write off claims and we want to help you evaluate when to write off claims and when to pursue payment.
One of the ways to know when to write off a claim is when a claim has gone past timely filing and it has not been submitted to the insurance company already. If you are using TherapyNotes, you know that you will need to complete a progress note before submitting a claim to insurance. We know that life happens and you are not always able to complete your notes on time. If that happens and a claim goes past timely filing, you will likely need to write those claims off. Feel free to see our other blogs on how to effectively get more done if you have trouble completing your notes on time.
If you have submitted your claim within timely filing and the claim is denied for timely filing then you will need to appeal the claim with the insurance company and see if you can recoup the payment. Our team helps with this process all the time and we are ready and willing to help recoup any claims that you are having a hard time with.
The second way to know when a claim needs to be written off is when the patient has a carve out plan that doesn’t cover mental health benefits. A carve out plan is when a primary insurance company subcontracts the insurance benefits of a patient to another insurance company. Without an eligibility and benefits check, the claim will likely be denied or the therapist will not know if they are in network with the carve out company. Oftentimes, if the therapist is not in network with the carve out company, then the claim will not be covered and will need to be written off.
This does not mean that you cannot collect from your client. If a claim denies due to network coverage then you might still be able to get paid from the client themselves, but that is a conversation that you can have with your client if the time comes.
The last way to know when a claim needs to be written off is if the claim is older than 1 year old and has either not been submitted or not been followed up on. We know that you are busy running your practice and sometimes the last thing that gets attention is that aging report with all of your old claims. Oftentimes, this is one of the first things to fall by the wayside when your schedule fills up. However, if claims are not followed up on and issues are not caught in a timely manner then you will likely run into significant issues with the insurance company and will need to write off the claims with the insurance company.
Our goal is to help you capture as much revenue as possible and we work diligently to follow up on those old and pesky claims. If you find that you are writing off more than 25% of your aging every year or if you have questions about your old claims, feel free to reach out to us and a member of our team would be happy to explain how we can help you and your practice.
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Vehicle Tax Deductions and Write-Offs Explained
Section 179 and other vehicle deductions, what vehicles qualify for tax deductions, mileage deductions, actual expense deductions, the section 179 deduction, frequently asked questions (faqs).
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If you use a vehicle as part of your business operations, such as to deliver products or drive to worksites, your company may be eligible for certain tax deductions. But there are a few important details to consider so you know what you can include, when you can do it, and how to write off these expenses.
You may qualify to deduct some of your vehicle-related expenses if you use your car for business purposes. The IRS defines a car as any four-wheeled vehicle—including a truck or van—intended for use on public streets, roads, and highways. It mustn't exceed 6,000 pounds in unloaded gross weight. Exceptions include ambulances, hearses, vehicles used to transport people or property for money or hire, or trucks or vans that are qualified nonpersonal use vehicles.
You can take this tax deduction in a few different ways, from the standard mileage rate and actual car expenses to the Section 179 deduction. However, if you use your car for both business and personal driving, you must split the expenses based on your actual mileage.
If you qualify for multiple deduction methods, you might want to experiment to see which one will save you the most money.
When calculating your standard mileage rate, you will multiply how many business miles you drove by the standard mileage rate. This rate changes regularly and in 2022, the standard mileage rate for businesses was set at 58.5 cents per mile. Miles driven to and from work from your home, otherwise known as commuting miles, are not deductible. You must keep detailed records and be able to provide enough evidence to support your claims.
If you use the standard mileage deduction, you can’t include other costs related to your car except for business-related tolls and parking fees. However, parking fees for your workplace aren’t deductible since they’re considered commuting expenses.
To use the standard mileage rate with a vehicle you own, you must use it during the first year your business can use the car. After that initial year, you can choose between the standard mileage rate and actual expenses. If you’re leasing a car , you must stick with the standard mileage rate for the duration of the lease, including renewals.
The IRS outlines the following restrictions for using the standard mileage rate:
- You can’t operate five or more cars, such as running a fleet of delivery vehicles.
- You can’t use any method besides straight line to claim a depreciation deduction for the car.
- You can’t have claimed a Section 179 deduction or the special depreciation allowance on the car.
- You can’t have claimed actual expenses on a leased car after 1997.
Alternatively, you can choose to take the actual car expense deduction. To do so, you must keep track of all qualifying car-related expenses. If you drive your car for both personal and business use, you can only deduct the percentage used for business use.
For example, let’s say you’re in sales and drove your car 16,000 miles in 2021—12,000 miles for business and 4,000 miles for personal use. That means you could claim 75% (12,000 ÷ 16,000) of the car’s expenses as business expenses.
The IRS allows you to deduct the following actual car expenses:
- Lease payments
- Garage rent
- Parking fees
- Registration fees
Documenting your expenses is crucial in case your taxes are audited . Keep a mileage log or account book as well as receipts and invoices to back up your claims. You can learn more about recordkeeping from IRS Publication 463 .
When buying equipment and other lasting items for your business, you’d typically deduct portions of the cost over time through depreciation. However, the Section 179 deduction is an effort to incentivize small business owners to purchase equipment and invest in their companies. Section 179 allows businesses to deduct the full purchase price of qualifying equipment (such as a vehicle) bought or financed and put into service sometime during the same tax year. The deduction limit in 2021 is $1,050,000.
For example, let’s say you spent $20,000 on a new car for your business in June 2021. You use the car for business purposes 75% of the time. If you were to claim the Section 179 deduction, you could take a $15,000 deduction ($20,000 × 0.75) on your 2021 tax return, which you’d file in early 2022.
Section 179 Deduction Limits
To qualify for this deduction, you must use the vehicle for business purposes more than 50% of the time. Plus, you can only claim the Section 179 deduction in the year you put the car into service; a car you acquired for personal purposes in 2020 then changed to business use in 2021 doesn’t qualify for the deduction.
The IRS has specific rules for sport utility vehicles and certain other vehicles, so before purchasing a vehicle for your business, make sure to familiarize yourself with the Section 179 deduction guidelines to see if it will qualify.
Ask your tax return preparer about claiming tax deductions on your business vehicles and which option they think is the best fit for your situation. The IRS provides a directory of federal tax return preparers who hold specific credentials and qualifications.
What vehicles meet Section 179?
Vehicles put into service for business use the same year they were purchased or financed may qualify for Section 179 deductions. Vehicles must be used more than 50% of the time for business purposes. The IRS also has additional rules regarding sport utility vehicles and certain other vehicles, so it’s worth checking the guidelines before purchasing a car for your business.
How do you write off a car on your taxes?
Vehicles used for business purposes can often be written off using a few different tax deductions: the standard mileage rate, the actual expense deduction, or the Section 179 deduction. If you qualify for more than one deduction, you may want to run the numbers using different methods to see which one gives you the biggest deduction.
Internal Revenue Service. " Publication 463 (2021), Travel, Gift, and Car Expenses ," Page 16.
Internal Revenue Service. “ IRS Issues Standard Mileage Rates for 2022 ."
Internal Revenue Service. " Publication 463 (2021), Travel, Gift, and Car Expenses ," Pages 14, 24-25.
Internal Revenue Service. " Publication 463 (2021), Travel, Gift, and Car Expenses ," Pages 14-15.
Internal Revenue Service. “ Topic No. 510 Business Use of Car .”
Internal Revenue Service. " Publication 463 (2021), Travel, Gift, and Car Expenses ," Page 15.
Internal Revenue Service. " Publication 946 (2021), How To Depreciate Property ," Page 18.
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One of the ways to know when to write off a claim is when a claim has gone past timely filing and it has not been submitted to the insurance company already. If you are using TherapyNotes, you know that you will need to complete a progress note before submitting a claim to insurance.
Self-employment tax deduction. The IRS lets you deduct half of the 15.3 percent self-employment tax (which covers social security and medicare taxes), so 7.65 percent—the same amount you would deduct if you were an employer. Plus, you’ll lower your taxable profit with the more deductions you’re able to claim.
The deduction limit in 2021 is $1,050,000. 7. For example, let’s say you spent $20,000 on a new car for your business in June 2021. You use the car for business purposes 75% of the time. If you were to claim the Section 179 deduction, you could take a $15,000 deduction ($20,000 × 0.75) on your 2021 tax return, which you’d file in early 2022.