A Simple Guide to Small Business Write Offs

What is Business Writing?

Any time you write an email or a pitch at work, a letter to your boss, or even a cover letter for a job application, it can be seen as business writing. Business writing should be clear, concise, and get the message across to the reader in a purposeful way. It’s an important skill to have because those who can communicate more effectively tend to be recognized for that at the workplace.

Types of Business Writing

Instructional

The purpose of instructional business writing is to — just as it sounds — provide instructions to the reader. It helps the reader learn how to complete a certain task. Now, the more complex this guide is, the more it would be considered technical writing. But you can think of this as writing a memo for your staff or colleagues at work.

Persuasive

Persuasive business writing has the job of convincing others to do something, or driving them to take action. It could be in the form of a press release, writing a business plan, or constructing an email blast asking for donations. Persuasive business writing usually comes in conjunction with sales and marketing.

Informational

Transactional

Why is Business Writing Important?

For one, the better you can communicate at work with others, the easier you’ll be to work with. At the same time, if your colleagues are good at business writing, it will make things move along much more efficiently, and you can feel purposeful at your job.

Being able to write for business is essential no matter what industry you’re in, and whether or not that industry relies heavily on writing. The next time you go to work, try to pay attention to how much business writing you do in a day. You may not even realize it!

The better and more experienced you get with business writing, the more you’ll be recognized for it as a prospective employee, current employee, or an employee due for a promotion!

Woman in blue writing a business report

How Do Business Write Offs Work?

Business write offs are included on annual income tax returns. Every business needs to file an annual income tax return. The exception to this is partnerships, who need to submit an information return.

For example, a sole proprietorship is an unincorporated business that is owned by one person. Sole proprietorships report their business income and claim write offs on Schedule C of their personal tax return. To properly categorize expenses, it’s a good idea to make expense categories in your accounting software.

It’s important to make sure you keep documentation of all your business expenses, small or large. Businesses can’t rely on entries in their bookkeeping software to prove actual costs. Even bank statements might not be sufficient.

You must keep all your receipts and records of the purchase, whether it’s physically or digitally. This will help you stay prepared should your business get audited by the IRS. If that happens, they might ask you to prove the deductions claimed on your tax return.

As well, you need to keep those detailed records for three years after you file your return. This can get extended to seven years if the IRS thinks you might not be reporting all your income.

What Expenses Can You Write Off for Your Small Business?

Understanding what expenses you can and can’t claim or write off for your small business is important. It can help you decrease the amount of income tax that you owe or even increase your refund. Here are some of the most important small business write offs.

Advertising and Promotion

Business Meals

Make sure that you’re keeping the necessary documentation that includes how much each expense is. As well as the place and the date the meal happened and the business relationship you have with the person you’re with. The easiest way to do this is to write down the details on the back of your receipt.

Business Insurance

Bank Fees

If you get charged annual or monthly service charges, transfer fees or overdraft fees for your bank or credit card, they might be deductible. You might be able to deduct transaction fees or merchant fees that you pay to third-party payment processors. Which could include platforms like Stripe or PayPal.

Business Use of Your Car

If you need to use your personal vehicle for business purposes then you can deduct certain costs of operating your vehicle. Make sure that if you use it for both business and personal reasons to only deduct the actual business-related usage.

Both methods require you to keep accurate records and logs of your business mule. You can use an app to help track and monitor your trips or update your mileage to be more efficient. Make sure to clearly document things like the total miles driven, the time and place and the purpose of your trip.

Contract Labor

You might need to hire a freelancer or independent contractor to do work for your business. If you do, you can deduct the cost of their fees as a business expense. That said, if you pay a contractor over $600 throughout the tax year you need to send them the Form 1099-NEC no later than January 31 of the next year.

Depreciation

Sometimes your business needs to purchase things like equipment, furniture or other assets. When that happens, depreciation rules make it so that you have to spread out the costs of those assets. This has to happen during the years they’re getting used instead of just deducting the whole cost at once.

Education

Some education costs can get fully deducted as long as they add value and increase your ability to do your work. The IRS will take a look at whether or not the expense maintains or improves your skills. Here are some of the common business education expenses.

Home Office Expenses

With the simplified method, where you deduct $5 per square foot of the area of your home that you use for business. And the standard method, where you track all your actual expenses.

Understanding Write-Offs

Businesses regularly use accounting write-offs to account for losses on assets related to various circumstances. As such, on the balance sheet, write-offs usually involve a debit to an expense account and a credit to the associated asset account. Each write-off scenario will differ, but usually, expenses will also be reported on the income statement, deducting from any revenues already reported.

Generally Accepted Accounting Principles (GAAP) detail the accounting entries required for a write-off. The two most common business accounting methods for write-offs include the direct write-off method and the allowance method. The entries will usually vary depending on each individual scenario. Three of the most common scenarios for business write-offs include unpaid bank loans, unpaid receivables, and losses on stored inventory.

Bank loans

Financial institutions use write-off accounts when they have exhausted all methods of collection action. Write-offs may be tracked closely with an institution’s loan loss reserves, which is another type of non-cash account that manages expectations for losses on unpaid debts. Loan loss reserves work as a projection for unpaid debts, while write-offs are a final action.

Receivables

A business may need to take a write-off after determining a customer is not going to pay their bill. Generally, on the balance sheet, this will involve a debit to an unpaid receivables account as a liability and a credit to accounts receivable.

Inventory

There can be several reasons why a company may need to write off some of its inventory. Inventory can be lost, stolen, spoiled, or obsolete. On the balance sheet, writing off inventory generally involves an expense debit for the value of unusable inventory and a credit to inventory.

What Is a Tax Write-Off?

The Internal Revenue Service (IRS) allows individuals to claim a standard deduction on their income tax return and also itemize deductions if they exceed that level. Deductions reduce the adjusted gross income applied to a corresponding tax rate. Tax credits may also be referred to as a type of write-off because they are applied to taxes owed, lowering the overall tax bill directly. The IRS allows businesses to write off a broad range of expenses that comprehensively reduce taxable profits.

Businesses regularly use accounting write-offs to account for losses on assets related to various circumstances. As such, on the balance sheet, write-offs usually involve a debit to an expense account and a credit to the associated asset account. Each write-off scenario will differ, but usually, expenses will also be reported on the income statement, deducting from any revenues already reported. This leads to a lower profit and lower taxable income.

Resource:

https://www.uopeople.edu/blog/what-is-business-writing/
https://www.freshbooks.com/hub/accounting/business-write-offs
https://www.investopedia.com/terms/w/write-off.asp

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