Write-offs in accounting are business costs or asset losses that reduce the income a business pays tax on. The term covers two related ideas: a tax deduction for a qualified business expense that offsets revenue, and a balance-sheet adjustment that removes the value of an asset that has lost its worth, like an uncollectible invoice or inventory destroyed in a flood. Both lower taxable income, and both follow specific IRS rules about what qualifies, how the cost is documented, and when it can be recognized.
What a Write-Off Means in Accounting
In casual use, people call almost anything that lowers a tax bill a write-off. The accounting meaning is narrower and splits into two branches.
The first branch is a tax deduction. A qualified business expense gets subtracted from gross revenue before the tax rate is applied. Advertising, rent, software subscriptions, and professional fees all fit here.
The second branch is a balance-sheet adjustment. When an asset the business already owns loses its value, the recorded value comes down or disappears entirely. A customer account that turns out to be uncollectible, inventory that spoils, equipment destroyed in an accident — each gets written down or written off so the books reflect reality.
A write-off is not a tax credit. A credit reduces the final tax bill dollar for dollar. A deduction reduces the income the tax rate is applied to. That difference is where most first-time business owners overestimate what a write-off is worth.
How Much a Write-Off Actually Saves You
The cash value of a write-off is the deduction amount multiplied by your tax rate. At the current 21% federal corporate rate, a $10,000 write-off saves a C corporation $2,100 in federal income tax.1Worldwide Tax Summaries. United States Corporate – Taxes on Corporate Income If a sole proprietor in the 24% federal bracket writes off $5,000, their income tax drops by roughly $1,200, not $5,000.
Self-employed filers get a second layer of savings because write-offs on Schedule C also reduce self-employment tax. SE tax funds Social Security and Medicare at a combined 15.3% — 12.4% for Social Security and 2.9% for Medicare — and applies to 92.35% of net earnings rather than the full amount.2Internal Revenue Service. Topic No. 554, Self-Employment Tax Half of the SE tax paid is itself an adjustment to gross income.
Put rough numbers on it. A self-employed filer in the 24% bracket who finds an additional $10,000 in legitimate write-offs cuts income tax by about $2,400 and SE tax by roughly $1,400. That is around $3,800 back in pocket. Meaningful, but a long way from $10,000. Anyone claiming a write-off “pays for itself” is ignoring the arithmetic.
What Qualifies: The Ordinary and Necessary Test
The legal foundation for business write-offs is IRC Section 162, which allows a deduction for expenses that are both ordinary and necessary for carrying on a trade or business.3Office of the Law Revision Counsel. 26 U.S. Code 162 – Trade or Business Expenses Ordinary means the expense is common and accepted in your industry. Necessary means it is helpful and appropriate for producing income. The IRS has long held that necessary does not mean indispensable; it just has to make sense for your business.
The expense also has to be reasonable in amount. Auditors scrutinize costs that look excessive or that blur personal and business use. The burden of proof sits with you. If you claim it, you need to show it was real, business-related, and appropriately sized.
Everyday Operating Expenses
Most routine operating costs are fully deductible in the year you pay them. Advertising, office supplies, rent, utilities, software subscriptions, professional fees paid to accountants or attorneys, and business insurance premiums all qualify. For sole proprietors and single-member LLCs, these appear on Schedule C and directly reduce net profit.
Several common categories have their own rules worth knowing before you claim them.
Vehicle use can be deducted either at the standard mileage rate or by tracking actual costs — fuel, maintenance, insurance, registration — and deducting the business-use percentage. For 2026, the IRS standard mileage rate for business driving is 72.5 cents per mile.4Internal Revenue Service. IRS Sets Business Standard Mileage Rate If you own the vehicle and want to use the standard rate, you must elect it in the first year the car is available for business. For a leased vehicle, whichever method you pick is locked in for the full lease.
A home office qualifies if you use a dedicated space exclusively and regularly as your principal place of business or a place where you meet clients. The simplified method is a flat $5 per square foot, capped at 300 square feet, so a maximum of $1,500.5Internal Revenue Service. Simplified Option for Home Office Deduction The regular method applies the business-use percentage of your home to actual housing costs, which produces a larger deduction for bigger spaces at the price of more record-keeping.
Business travel is fully deductible when the trip is primarily for business.6Internal Revenue Service. Topic No. 511 – Business Travel Expenses Business meals are deductible at 50% of the cost when someone from the business is present and the meal is not lavish or extravagant.7Internal Revenue Service. Publication 463 – Travel, Gift, and Car Expenses A temporary provision allowed 100% deduction for restaurant meals in 2021 and 2022, but that has expired, and the 50% limit applies for 2026.
Business gifts to clients, vendors, or other contacts are deductible, but the ceiling is $25 per recipient per year.8Office of the Law Revision Counsel. 26 U.S. Code 274 – Disallowance of Certain Entertainment, Amusement, Recreation, and Travel Expenses That cap has not moved since 1962. Engraving, wrapping, and shipping do not count against it, and promotional items under $4 that bear your business name are excluded entirely.
Self-employed health insurance premiums for yourself, your spouse, and your dependents are 100% deductible if you are not eligible for coverage through a spouse’s employer plan.9Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) This one is an adjustment to gross income on the personal return rather than a Schedule C expense, so it reduces income tax but not SE tax.
Costs You Have to Spread Over Time
Whether a cost is written off immediately or spread over several years depends on how long the benefit lasts. Short-lived expenses go in the year paid. Expenditures that create a lasting benefit — a delivery truck, manufacturing equipment, a patent — must be capitalized and then written off gradually through depreciation or amortization.
Depreciation Under MACRS
Tangible assets like vehicles, machinery, furniture, and buildings are depreciated over a recovery period set by the IRS. The Modified Accelerated Cost Recovery System (MACRS) applies to property placed in service after 1986 and assigns each type of asset a specific lifespan: five years for computers, seven years for office furniture, 39 years for commercial buildings, and so on.10Internal Revenue Service. Topic No. 704, Depreciation A fraction of the cost comes off each year until the asset is written down to zero.
Section 179 Immediate Expensing
Section 179 lets you deduct the full purchase price of qualifying equipment, vehicles, software, and certain improvements in the year you place them in service. For the 2026 tax year, the maximum Section 179 deduction is $2,560,000, and it phases out dollar-for-dollar once total equipment purchases for the year exceed $4,090,000.11Internal Revenue Service. Instructions for Form 4562 The deduction cannot exceed your taxable business income for the year, so Section 179 cannot be used to create or increase a loss.
Bonus Depreciation
Bonus depreciation works alongside Section 179 but without the taxable-income limit, meaning it can generate a net operating loss. Under prior law, the bonus rate was phasing down (80% in 2023, 60% in 2024, 40% in 2025, heading to zero by 2027). The One Big Beautiful Bill Act, signed in July 2025, reversed that phaseout and permanently restored 100% bonus depreciation for qualified property acquired after January 19, 2025.12Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One Big Beautiful Bill For most businesses buying equipment in 2026, the entire cost can come off in year one.
Amortization of Intangibles
Intangible assets like patents, trademarks, customer lists, and goodwill acquired in a business purchase are written off through amortization. IRC Section 197 spreads these costs evenly over 15 years, starting in the month you acquire the asset.13Office of the Law Revision Counsel. 26 U.S. Code 197 – Amortization of Goodwill and Certain Other Intangibles Intangibles do not qualify for Section 179 or bonus depreciation.
Writing Off Bad Debts
When a customer owes you money and it becomes clear they will never pay, the receivable can be written off as a bad debt. The IRS requires you to show the debt is genuinely worthless, meaning you took reasonable collection steps and concluded further pursuit would be futile.14Internal Revenue Service. Topic No. 453, Bad Debt Deduction A court judgment is not required.
Business bad debts can be deducted in full or in part, but the amount must have been previously included in gross income. That is automatic for accrual-method businesses because they recognize the revenue when the invoice is sent. Cash-basis businesses typically cannot claim bad debt deductions for unpaid invoices because they never recorded the income to begin with. The deduction has to be taken in the year the debt becomes worthless, so waiting too long can forfeit it entirely.
What You Cannot Write Off
Several categories of cost are explicitly non-deductible, and claiming them is a reliable way to draw IRS attention.
- Government fines and penalties paid to settle a violation of any civil or criminal law — traffic tickets, OSHA fines, environmental penalties — cannot be deducted.15eCFR. 26 CFR 1.162-21 – Denial of Deduction for Certain Fines, Penalties, and Other Amounts
- Political contributions to candidates, PACs, or campaigns are never deductible, and lobbying expenses aimed at influencing legislation or communicating with government officials about policy are barred under IRC Section 162(e).16Internal Revenue Service. Nondeductible Lobbying and Political Expenditures
- Commuting from home to a regular workplace is a personal cost. Only trips from your workplace to a second business location, or travel away from your tax home, qualify.
- Club dues for country clubs, social clubs, or athletic facilities are not deductible, even if you occasionally meet clients there.
- Personal expenses with a business veneer — street clothing, personal grooming, lavish entertainment — do not become deductible because business got discussed.
The line between personal and business is where most audit disputes happen. When an expense serves both — a phone used for personal and business calls, a car driven to job sites and the grocery store — only the business-use portion is deductible, and you need contemporaneous records to back up the split.
When Write-Offs Exceed Income: Net Operating Losses
If deductible expenses run higher than income for the year, the result is a net operating loss. The excess is not lost; it can be carried forward to offset taxable income in future years. NOLs arising after 2017 can be carried forward indefinitely until fully used.17Office of the Law Revision Counsel. 26 U.S. Code 172 – Net Operating Loss Deduction
The catch is an 80% limit. In any future year, an NOL carryforward can offset no more than 80% of that year’s taxable income, so even a business sitting on huge accumulated losses will still owe tax on at least 20% of a profitable year’s income.
Documentation You Need to Keep
Every deduction you claim needs documentation: receipts, invoices, bank statements, and contemporaneous logs showing the date, amount, and business purpose of the expense. “I think I spent about that much” does not survive an audit. The IRS can disallow any deduction you cannot substantiate, and the resulting adjustment comes with interest and potential penalties.
The IRS asks you to keep supporting records for at least three years from the date you filed the return claiming the deduction.18Internal Revenue Service. How Long Should I Keep Records? That period extends to six years if the IRS suspects you underreported income by more than 25%, and to seven years for a bad debt or worthless securities deduction. For depreciable assets, keep records until the statute of limitations expires for the year you dispose of the property, which in practice means holding purchase records for the whole life of the asset plus three years.
Employment tax records have their own four-year retention period. If you have employees and deduct wages, benefits, or payroll taxes, those records should be kept for at least four years after the tax was due or paid, whichever is later.18Internal Revenue Service. How Long Should I Keep Records?