Most Common Tax Write-Off Examples for 2023

An excellent way to reduce the rate of earnings is to get acquainted with the different tax write-off examples that may be applicable to your business.

A tax write-off is a great way to balance your expenses with your taxes, especially if you run a small business. We all know that fulfilling one’s tax obligations leaves financial challenges for startups, on top of the costs that come with starting and maintaining them.

This article explores the different ways you can use tax write-offs to leverage your business expenses and reduce the taxable amount of your hard-earned revenue.

So read on and find out how to manage your business costs while still keeping your tax duties in check!

Key Takeaways

• A tax write-off refers to business expenses that may be deducted from your annual taxable income. You can deduct tax write-offs partially or fully.
• There are several tax write-off categories that small businesses can use, such as bank fees, marketing expenses, employee benefits, and transportation expenses.
• Individual taxpayers and businesses can qualify for one or more tax write-off examples depending on their filing status, expenses, and the nature of their work.
• Tax write-offs help balance the debits and credits in a business’s accounting records. Assets that are deemed unsuitable for sale are also written off.

What is a Tax Write-Off?

A tax write-off is any expense in your business that can be deducted from your annual taxable revenue. For instance, if you incurred expenses related to procuring equipment or fulfilling transactions needed to operate your business, then you can discount your expenses from the total amount of your income that is typically used to pay your taxes.

It is crucial to note that expenses must be a key factor in regulating your operations. Some examples include office equipment or supplies, health insurance premiums, business travel, and employee salaries and benefits.

All of the enumerated examples are essential for small businesses to maintain a steady flow of sales and ROI. You need to pay for office equipment such as computers and furniture to ensure your employees can work properly and comfortably.

Health insurance, benefits, and salaries are key expenses that you, as an employer, cover in exchange for the services rendered by your staff. Tax write-offs can be deducted partially or fully.

Are Tax Deductions the Same as Tax Write-Offs?

Essentially, yes, tax deductions are the same as tax write-offs.

Write-offs are expenses you subtract from the amount of your income that typically goes to your taxes. In other words, it is a form of deduction from your taxable income.

On the other hand, tax deductions are not the same as tax credits. Tax deductions cut down on the amount of revenue or income that can be taxed, while tax credits subtract tax liabilities, or the remaining unpaid taxes that you still owe the federal, state, or local governments.

Small Business Tax Write-Off Categories

Tax write-offs aremore common in small businesses because they help deduct as many expenses as the IRS would allow. As a result, startups and small businesses effectively manage their finances and tax responsibilities.

Some of the tax write-off categories that small businesses can use in filing their tax returns include:

• Bank fees
• Business travel
• Contractors, suppliers, or consultants
• Education
• Employee benefits
• Marketing
• Miscellaneous (Meals, Entertainment)
• Lease or rent
• Office equipment
• Training
• Transportation expenses (specifically involving trucks and cars)

20 Common Tax Write-Off Examples for 2023

Check out the following tax write-off examples for 2023 and get your accounting books and calculators ready:

#1. Mortgage Interest

Mortgage interest can be used to deduct your taxes owed, particularly when used for home repairs and home improvement purposes. For example, you might have used your mortgage loans to build a home office, make some renovations to your residential property, or even improve your office space to help enhance your operations.

You can also check IRS Publication 936 to see if there are any other tax deductions that qualify under mortgage interest.

#2. Property Taxes

Homeowners can reduce their local and state income taxes through property tax deductions. Note that property tax write-off will not apply if you claim the standard tax deduction, so you have to weigh your options and check which would benefit your business best.

Determining the amount of property tax to be deducted is based on the assessed value of your home or primary residential property, vacation home, land, or estate. On top of that, you also have to account for the relevant updates made to the Tax Cuts and Jobs Act.

#3. State Taxes Paid

Paid state and local income taxes may be deducted as a tax write-off as well. You can deduct up to $10,000 from your state taxes. If you are married and filing separately, you can only deduct up to $5,000.

However, if you use local general sales taxes for your tax write-off, then you may not use them alongside the deductions for state and local income taxes.

#4. Charitable Contributions

Charitable donations and gifts may be subtracted from your taxable income or revenue. A tax write-off of up to 60% of your amended gross earnings is allowed by the IRS.

Donations may be in the form of cash, various properties such as an aircraft, car, or boat, or tangible goods like household items, clothing, or paintings and artifacts. It is important to note that only charitable contributions given to qualified organizations are considered by the IRS.

#5. Homeowner Deductions

To reduce your taxable income with homeowner deductions, you can itemize your:

• Home equity loan
• Home mortgage interest
• Real estate taxes
• Private mortgage insurance
• Mortgage points

#6. American Opportunity Tax Credit

The American opportunity tax credit (AOTC) is a type of credit designed for eligible students, and it covers expenses paid for by eligible students for their educational expenses for the first four years of higher education.

Each eligible student is eligible for a maximum of $2,500 worth of annual AOTC credit. According to the IRS, if the credit reduces the amount of taxes owed to zero, then about 40% of what remains of the credit may be refunded.

#7. Medical & Dental Expenses

Medical and dental expenses that exceed around 7.5% of your adjusted gross income may be included and claimed in your deductions on your tax return.

Examples of medical costs that qualify as deductible taxes include:

• Acupuncture
• Prescription drugs
• Insurance premiums
• Addiction recovery programs
• Hospital and nursing home care
• Transportation costs used to access medical assistance
• Weight-loss programs for obesity and other diseases diagnosed by a doctor
• Professional fees paid to doctors, dentists, psychiatrists or psychologists, and other types of medical practitioners

#8. Retirement Credits

Employer-sponsored retirement savings plans such as a 401(k) enable employees to have a percentage of their regular income automatically withheld and contributed to their retirement account.

Retirement credits are not limited to taxpayers who are hired by employers and companies. Self-employed individuals may create their own 401(k) account or retirement plan and calculate the deductible amount on their taxes based on their regular earnings and filing status.

#9. Lifetime Learning Credit

Lifetime Learning Credit covers qualified tuition fees and other significant school expenses, which are paid for eligible students. This type of credit does not have an imposed limit on the number of years students can claim it on their tax returns.

The aim of the Lifetime Learning Credit is to provide financial assistance in covering courses for undergraduate, graduate, and professional degrees. Eligible students may claim up to $2,000 per tax return.

#10. Meals Deduction

In 2021 and 2022, all food and beverages purchased from restaurants were allowed to be deducted from taxable income. However, the Tax Cuts and Jobs Act updated the rule and made restaurant-bought meals non-deductible.

Based on the new breakdown of deductible meals, the following are either 100% or 50% deductible or non-deductible at all:

100% deductible meal expenses are:

• Meal expenses included in employees’ compensation and W-2
• Meals served for company-wide events

50% deductible meal expenses include:

• Office snacks and meals
• Meals served to employees during conferences, business trips, and board meetings
• Business meals shared with clients

Non-deductible:

• Expenses used to entertain clients, including tickets to concerts, game events, and other leisurely activities

#11. IRA Contributions

IRA contributions (Individual Retirement Arrangements) are tax-favored arrangements for personal savings. This means taxpayers can keep profits on their personal savings up to a certain percentage without being taxed.

Traditional IRA contributions are qualified for tax deductions. The deductible amount, however, will depend on your annual income. It also depends on whether you or your spouse are covered by any employer-sponsored retirement plans.

#12. Student Loan Interest

If you paid interest on your student loans, then you may be qualified for a student loan interest deduction for a maximum of $2,500. To qualify, your modified adjusted gross income should not exceed $70,000, or $145,000 if you are married and filing jointly.

Tax deductions in the form of student loans are taken above the line, as opposed to being itemized as you normally would in your tax returns. In short, it is taken directly from your taxable earnings.

#13. Travel Deduction

The key for travel expenses to qualify as a tax deduction is that the destination must not be in close proximity to your tax residence. By “proximity,” this means any area within the city where your tax home is located.

Your business trip should be far from your residential area, take more than a regular working day to complete, and also be necessary.

Here are some travel expenses that qualify for a tax write-off, according to the IRS:

• Parking fees
• Toll fees
• Business calls
• Meals
• Lodging
• Travel costs to and from your target location (applicable whether you travel by bus, car, plane, or train)
• Shipping costs of baggage and essential work materials to your destination

#14. Self-Employed Health Care Premiums

Self-employed individuals can deduct up to 100% of the health insurance premiums that they have paid monthly. These premiums may be paid for themselves, for dependents under 27 years old, or for their spouse.

Itemizing deductions is not required for self-employed healthcare premiums.

Taxpayers who qualify for company-sponsored healthcare plans are not eligible to claim self-employed healthcare premiums.

#15. Internet and Phone Bills Deduction

All internet and telephone expenses relevant to the continuity of your business operations can be itemized and deducted from your taxable income. If you are using a home landline, then you cannot include your phone expenses in your tax deductible-amount.

It is better to have a second or separate landline installed for business purposes to avoid confusion when recording and itemizing your tax returns. Keep all essential records, particularly your monthly bills, particularly if you use your phone and internet for business and personal purposes.

#16. Dues and Publications Deduction

Under this category of tax write-off examples, subscription fees and membership dues to industry-related publications and business memberships can be deducted from your income tax.

Your journal, magazine, or book subscription must be to publications that have direct relevance to the nature and structure of your business.

For instance, if you run an architectural firm, your business must sign up for renowned publications such as Architectural Digest or Architect’s Journal.

As for membership dues, the IRS reiterates that clubs and associations in which businesses partake must not be for entertainment purposes, especially if they want to itemize the said fees for tax refunds and deductions.

A few examples of business organizations where membership fees are tax deductible include:

• Trade associations
• Organizations dedicated to public service
• Chambers of commerce
• Business leagues

#17. Vehicle Use Deduction

All expenses incurred while using your car for business purposes are included in your tax write-off. The IRS provides a standard mileage rate that allows taxpayers to calculate their annual vehicle use deduction.

For reference, the standard mileage rate enables a fast and easy method of recording your total business miles for business-related vehicle use. For 2023, standard mileage rates are 65.5 cents per mile.

When itemizing vehicle use deductions, don’t forget to include the date for each trip and include all expenses for gas, repairs, oil changes, depreciation, and registration fees.

#18. Interest Deduction

Interest deduction refers to interest on bank loans made for business purposes. Unless it is crucial, it is highly recommended that you spend within the means of your budget only.

At the same time, try not to apply for loans with the intention of using them for both business and personal purposes. Doing so makes it more tedious to track business-related expenses that qualify for a tax deduction.

Any incurred interest on personal loans is not included in interest deductions for your tax refunds.

#19. Business Insurance Deduction

Business insurance deduction covers all types of premiums paid to protect your business in case of emergencies, accidents, or natural disasters. These premiums are fire insurance, business liability insurance, car insurance, and credit insurance.

Understandably, paying for these premiums can burn a hole in every startup’s finances, despite the long-term advantage that they bring.

By making all expenses used to pay business insurance premiums tax deductible, business owners can recover the money paid for these premiums.

#20. Rent Deduction

If you are renting office space or equipment to operate your business, the payment made for rental expenses is allowed as a tax write-off. On the other hand, a reasonableness test is typically implemented if you have ties with the owner of the space or equipment you are renting.

Partial and full ownership of the equipment and office space automatically disqualifies your rent deduction for tax refund claims.

3 Practical Tax Write-Off Examples

Here are three tax write-off examples to help you visualize better how the different types of deductions described above apply in a real-world business or company setting:

Example #1.

Dale works at a startup as an intern web developer. He is still a university student but decided to apply for the internship program to gain relevant work experience early on.

Meanwhile, the startup rents office space at a commercial estate and pays monthly internet and phone bills to ensure constant communication with their clients and a seamless workflow for all projects.

Since Dale is a student, the startup then claims tax deductions on student loan interest he has incurred. The company also itemizes their expenses paid for renting office space and using phone and internet services.

Example #2.

A midsize enterprise (MSE) has over 400 employees on their payroll. They have an indoor cafeteria that regularly serves meals (lunch and snacks) for employees.

The enterprise specializes in providing event management solutions and applications, thus requiring their staff to use the company vehicle to travel to every client’s event and set up their services.

Finally, the company incurred business loan interest for renovating and improving the office space to accommodate their growing number of staff. All in all, the MSE can write off 50% of meal deductible expenses, vehicle use deductions, and interest deductions.

Example #3.

A business consulting firm itemizes costs for retirement credits, insurance benefits, medical and dental expenses for employees, and travel deductions for when staff goes on business trips to meet with clients.

The firm is also actively involved in philanthropic projects, consistently giving back to the community. This means they can write off charitable contributions on their taxable income.

Aside from engaging in charitable causes, the firm is also an active member of a few guilds and business associations related to their niche, as well as organizations in their community that are dedicated to creating programs for senior citizens and persons with disabilities.

In that regard, they can deduct Dues & Publication expenses from their taxes.

What is Tax Write-Off in Accounting?

In accounting, a write-off is an expense in businesses that is reported to accredit asset losses and unreceived payments. Not to be confused with a write-down that only reduces the book value of an asset, a write-off is typically done when the business has to report losses in its inventory, unpaid receivables, and unpaid loans.

When a write-off is recorded on the balance sheet, it merits a credit to the specific asset account where the loss is reported, along with a debit to the expense account. The allowance method and the direct write-off method are two of the most common methods of accounting for write-offs.

The allowance method involves removing the uncollectible amount from a customer’s accounts receivable. A direct write-off is done to write off an accounting entry that diminishes your balance sheet’s number of receivables.

A write-off is also helpful in significantly reducing a business’s annual taxable income.

Why are Assets Written Off?

Assets are written off when they can no longer be liquidated. In other words, the asset has lost its market value and is no longer useful for the business to make a profit.

It usually happens when the goods or stored inventory are damaged and deemed unsuitable for sale. Similarly, when an employee is paid by the company ahead of the scheduled pay period yet ends up leaving before the advance payment is paid back, the said payment becomes a compensation expense and therefore merits a write-off in the general ledger.

Tax Write-Offs FAQ

#1. What does it mean to do a tax write-off?

A tax write-off entails deducting expenses incurred for business purposes to reduce the taxable amount in a business’s annual income. There are several different types of tax write-offs that businesses can use.

#2. Is a tax write-off free money?

Not exactly. A tax write-off simply deducts the taxable amount from your annual income. At times, you may be eligible for a 100% deduction on certain expenses or be entitled to a tax refund. It is important to keep all documents and records that will help you track your tax deductions and refunds once you file your tax return.

#3. Are tax write-offs good?

Tax write-offs are highly beneficial for startups and sole proprietors. They are also quite helpful for individual taxpayers in reducing the amount they have to pay in taxes, depending on which deductions are applicable based on their gross income, dependents, and filing status.

#4. Do I qualify for a home office expense deduction if I rent my home?

If you are renting your home, then you can deduct a portion of your monthly rent from your taxes instead. You can also take the same percentage and apply it to other expenses related to your home office, such as utilities or home office supplies.

Final Thoughts

A tax write-off is highly advantageous if you know how and when to apply it to your taxable income. The examples enumerated in this blog should provide you with substantial background on how you can regulate your taxes and check whether you qualify for one or more tax deductions.

All in all, remember to keep records of all your transactions, especially if you are running a business. Make sure you secure all copies of important documents and file your tax returns on time, so you don’t miss out on any possible tax write-offs!