As a boss, we often hear about the importance of a write-off, but what is a write-off? Essentially, a write-off is a business expense that is tax deductible, which helps to lower the taxes you pay as a boss. Below are the basics to understanding a write-off:
1. Qualifying Business Expenses
Business expenses are classified as any purchase with the intent to return a profit. One of
the easiest business expenses that can be written-off is inventory. The cost of products or raw materials, as well as storage, for your inventory is a vital expense that is tax deductible. As a service-based business, the utilities and rent you pay for your business space can be deducted because it allows clients to return a profit for your business. Advertising and marketing expenses can also be written off as long as you can prove that it is an investment related to your business. Ensure you save all of your receipts to avoid complications in writing off these common business expenses.
2. Exceptions to Write-Offs
Although it seems feasible to write-off any business expense, there are a few exceptions to be aware of. Start-up and organizational costs, such as business registration, cannot be written off because the IRS classifies them as a capital expense. Other tricky write-offs can be travel and auto expenses in terms of proving relevance to your business. Airfare, tolls, hotels, etc. can be written off if the expenses are out of the town or city you conduct business in for more than a day. Additionally, auto expenses can be written off if you have records, including mileage, to show that it was business related. For a full breakdown of valid business expenses, visit https://www.irs.gov/publications/p535
3. How to Write Off an Expense
There are three basic steps to writing off a business expense. The first is categorizing each purchase and receipt, so you have an easy breakdown of your expenses that are eligible to be written off. Next, add up the total eligible business expenses. Utilizing an accounting software, such as QuickBooks, can streamline the first two steps in conducting a write-off. Lastly, you’ll need to file your total eligible expenses on Schedule C of Form 1040, which can be found by visiting https://www.irs.gov/pub/irs-pdf/f1040.pdf
Business expenses add up quickly, so write-offs can be extremely beneficial as a WOL boss. To learn more about write-offs, check out this YouTube link:
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