To write something off means to cancel or charge it as a loss. This financial term has actually gone mainstream, with people using “write off” to refer to various situations.
Strictly speaking, however, when you write something off financially, you reduce the value of an asset. In the same sense, a write off reduces the amount of your earnings or income.
For example, if a representative from a company takes a client out to dinner, he can charge the dinner to company expenses. This can be written off – considered a write off – and the amount can be deducted from the company’s earnings.
Another example is if a company sells a product or service to a client without receiving the payment immediately. If this client suddenly goes bankrupt within the next month or so and is not able to pay the debt, the amount can be considered a write off on the selling company’s part.
Other expenses are usually labeled as write offs. These expenses are then considered as necessary in order to continue with the company’s business operations.
Why are write offs necessary? What is their significance? It is easy to see that the smaller the published earnings of a company, the smaller the tax they will have to pay on it. As such, it is beneficial to write off certain expenses.
The same principle applies to personal expenses. If an individual declares certain expenses as necessary to earn the income, these may be considered write offs, thereby lessening the total amount to be taxed. Of course, there are regulations that govern what can be declared as write offs.
