The term write-off describes a reduction in recognized value. In accounting terminology, it refers to zero value of an asset. In income tax statements, it refers to a reduction of taxable income as recognition of certain expenses required to produce the income. Write-off is also used in vehicle insurance to describe a vehicle which is cheaper to replace than to repair, sometimes referred to as being "totaled" (a total loss).
Income tax:
In income tax calculation, a write-off is the itemized deduction of an item's value from one's taxable income. Thus, if a person has a taxable income of $50,000 per year, a $100 telephone for business use would lower the taxable income to $49,900. If that person is in a 25% tax bracket, the tax due would be lowered from $7,481 to $7,456. Thus the net cost of the telephone is $75 instead of $100.
More accurately no income taxes would be due on the expense/write off. So the net benefit would still be $25 in reduction to the taxes owed. However 25% of $50,000(taxable income) would be $12,500 and the reduction to $49,900(taxable income) would result in taxes due of $12,475 ($25 less).
Accounting:
In business accounting, the term write-off is used to refer to an investment for which a return on the investment is now impossible. The item's potential return is thus canceled and removed from ("written off") the business's balance sheet. Common write-offs in retail include spoiled and damaged goods.
Income tax:
In income tax calculation, a write-off is the itemized deduction of an item's value from one's taxable income. Thus, if a person has a taxable income of $50,000 per year, a $100 telephone for business use would lower the taxable income to $49,900. If that person is in a 25% tax bracket, the tax due would be lowered from $7,481 to $7,456. Thus the net cost of the telephone is $75 instead of $100.
More accurately no income taxes would be due on the expense/write off. So the net benefit would still be $25 in reduction to the taxes owed. However 25% of $50,000(taxable income) would be $12,500 and the reduction to $49,900(taxable income) would result in taxes due of $12,475 ($25 less).
Accounting:
In business accounting, the term write-off is used to refer to an investment for which a return on the investment is now impossible. The item's potential return is thus canceled and removed from ("written off") the business's balance sheet. Common write-offs in retail include spoiled and damaged goods.
