What is a Write-Off?
A “write-off” is the main financial benefit of starting a business — it allows you to reduce the amount you pay in taxes. You can “write-off” the cost of any ordinary and necessary expenses, such as your camera equipment, travel, telephone, and other business costs. These expenses are deducted from your “gross” income to show a lower “net” income. With a lower “net” income comes lower tax payments. For example, say you earn $1,000 from photography. As an individual, at an (imaginary) fixed tax-rate of 25%, you’d have to pay $250 in taxes. But with a business, you could deduct the cost of your $800 camera (if the expense was necessary to create the income) to show a net income of $200. ($1,000 – $800 = $200.) Now you pay $50 (25% of $200) in taxes rather than $250 — a savings of $200. You can even make a loss and get a tax credit. For example, say your travel costs were $600. That gives you a net loss of $400 ($1,000 – $800 – $600 = -$400). Now you get a tax credit of $100 (25% of $40
Write-offs are an accounting strategy that allows for the reduction in value of an asset or as a means of removing bad debt from the financial records of the business. The use of a write-off is a task that can help a company maintain a more accurate inventory of the worth of current assets. This includes the amount of funds currently residing in the Accounts Receivable section of the financial records. From time to time, a company may encounter a situation where a client encounters financial hardship, and is unable to pay for goods or services rendered. This creates a situation where the invoice for the services continues to remain on the books of the company as an asset. When it becomes clear that there is no chance of collecting on the outstanding invoice, it is advantageous for the company to choose to write off the amount of the invoice as a bad debt. An account write-off is not something that a company usually does without making reasonable attempts to collect the outstanding debt
Around 500,000 vehicles that are involved in a car accident are ‘written-off’ in the UK each year. If a car is deemed a write-off (or ‘total loss’) it means that due to the age and extent of the damage, it is beyond economical repair. A vehicle that has been deemed a write-off is known as salvage.
