Write-Offs:

The Right Way to Write-Off the Wrongs of Taxes

As year-end approaches, it’s always a good time to think about ways to lower taxes. One of the powerful tools at your disposal are write-offs, or tax deductions. But, have you ever heard the term, ‘write-off’, and wondered what it meant, but didn’t want to sound dumb for asking someone? You’re not alone. Check out how most people think about write-offs in the video below before we dispel common myths.

Since we know that someone has to pay for it, and it isn’t the government write-off people, what exactly is a write-off and how does it help you?

In the simplest terms, a write-off is an expense that you can deduct from your taxable income. This means you pay less in taxes, which is always a reason to celebrate. Write-offs can include business expenses like office supplies, travel, and even that fancy new laptop you bought to “increase productivity” (we all know it’s for streaming cat videos during lunch breaks). They can also include charitable deductions, mortgage interest and State And Local Taxes (SALT) on the personal side.

Here is where business owners get to flex their tax muscle, and TikTok videos get lots of views spreading semi-true information. Business owners can write off things like their home office (and all of the home-related costs associated with it), vehicle use, business meals, and board of advisor meetings. They can also write off legitimate payments to children (lots of nuance here) and the cost of renting their home from themselves for business use (the infamous Augusta Rule).

The Right Way to Approach Write-Offs

1. Keep It Legit: Only claim expenses that are ordinary and necessary for your business. If you’re a dog walker, those designer shoes might not qualify, but dog treats and leashes certainly do.
2. Document Everything: The IRS loves documentation almost as much as we love a good spreadsheet. Keep receipts, invoices, and any other proof of purchase. Remember, a shoebox full of crumpled receipts is not a filing system—it’s a cry for help.
3. Consult a Professional: Tax laws are as complex as assembling IKEA furniture without instructions. Consulting a professional can help ensure you’re maximizing your write-offs without crossing any lines.

Common and Comical Mistakes

1. The “Everything’s a Write-Off” Syndrome: Some folks think if they squint hard enough, anything can be a business expense. Sorry, but your trip to Hawaii is not a write-off unless you’re a travel blogger or you closed a deal while surfing. -BUT- Maybe we could get creative and hold an annual Board of Advisors meeting in Hawaii to coincide with that wedding you’re already going to.
2. Mixing Personal and Business Expenses: Buying a new TV for the office is great, but if it ends up in your living room, it’s not a business expense. Keep personal and business expenses separate to avoid any awkward conversations with the IRS.
3. The “Creative” Write-Offs: We’ve heard it all—from claiming a pet as a “security system” to writing off a spouse as a “business consultant” because they once gave you advice. While creativity is encouraged in many areas of life, remember that the IRS doesn’t employ anyone with a sense of imagination or humor. So, we’ve got to legitimize everything.

In conclusion, write-offs are a fantastic way to reduce your taxable income, but they require a careful and honest approach. By keeping things legitimate, documenting thoroughly, and consulting with professionals, you can avoid turning your write-offs into write-offs. And remember, when in doubt, reach out to us at Cadence Wealth Partners. We’re here to make financial planning less complex and more fun—without any of the tax-time headaches!

Happy deducting!

Disclaimer: This post is for informational purposes only and should not be considered as financial advice. Please consult with a financial advisor or tax professional for advice specific to your situation.

Feel free to share this with your clients and prospects to add a bit of humor to their financial planning journey!