Definition of a Tax Write-Off

A tax write-off stems from an expense you incur within a tax year. This expense can later be deducted or "written off" on your income tax return. Businesses and individuals seek to maximize their tax write-offs; however, not all expenses qualify for a tax write-off. The IRS has strict guidelines on what is and what isn't a tax write-off.

Function

Tax write-offs help reduce your taxable income. This becomes more important as you earn more money. Earning more money puts you in a higher tax bracket. A higher tax bracket means you'll pay more money in taxes. Tax write-offs save you money by increasing the amount of your allowable deductions. Your allowable deductions are subtracted by your adjusted gross income to determine taxable income.

Types of Tax Write Offs

There are several expenses that qualify as tax write-offs. If you're repaying a student loan, the interest payments on your loan qualify for a tax write-off. You can write off the interest paid on your mortgage loan. Business expenses, such as travel to meet clients, qualify for a tax write-off. Businesses can write off 50 percent of meals and entertainment expenses as long as the meal or entertainment is a cost of doing business.

Significance

It's vital that you keep all receipts that support your write-off. If you're claiming a write-off for your student loan, your lender will provide you with a form that indicates your loan amount and interest paid. If you get audited by the IRS, your receipts provide proof that you have a right to claim a particular tax write-off.

Time Frame

The deadline to file your income tax is April 15. Keep your tax write-off receipts for at least five years.

Expert Insight

Tax attorney Donna LeValley states, ""If the expense is real, take it. It may be strange, it may be large, but whatever it is, if it's real, be prepared to substantiate it, but don't be afraid to do it."