In the words of Kramer, just “write-it off.” In the famous Seinfeld episode, THe Package, that aired on October 17, 1996.
Kramer: They just write it off.
Jerry: Write it off what?
Kramer: Jerry, all these big companies, they just write off everything.
Jerry: You don’t even know what a write-off is.
Kramer: Do you?
Jerry: No. I don’t.
Kramer: But they do, and they are the ones writing it off.
Write It Off
A few things. Seinfeld never gets old. I love it. Another thing, Kramer is not wrong about these write-offs (except in the context of the show where it’s really an insurance fraud scheme, but for our purposes write-offs are very useful). What Kramer refers to as a write off is also called a business deduction. While it doesn’t make that expense free (as is the connotation with “write-off), it does reduce your taxable income (i.e. you keep more money and the government gets less money)…more on that below.
The benefits of business ownership starts with freedom to be your own boss and follow your passion. But you’ll quickly realize there are a lot of tax-related benefits, too.
Writing things off is one of those tax benefits.
By taking these business deductions, you reduce your amount of taxable income and therefore the amount of tax you pay at the end of the year. It can save you a lot of money in taxes.
Quick example: You bring in $10,000 in your first year of business. You spent $2,000 on getting your website set up, paying an accountant to advise you, and buying a desk and chair for your office. When you write off those expenses, you’re taking $2,000 off the top, leaving just $8,000 of taxable income. Now you’ll pay taxes on $8,000 instead of $10,000. (Note: This is a super-duper simplified example. Obviously taxes are much more complicated, or we’d all be tax professionals on the side.)
Expenses you write off must be business-related!
You can get in hot water with the IRS if you try to write off expenses that are not clearly in service of your business, so don’t try anything sneaky. The IRS has seen every trick in the book. Here’s a list of common LEGIT items that you may be able to deduct, depending on your business.
- Computers, software, equipment, tech
- Office supplies
- Travel expenses
- Health care and insurance premiums
- Retirement plans
- Home Office Deduction (be careful with this one and read the rule)
Each item has its own rules regarding writing it off, so this list is really meant to jumpstart your thinking on how you can make your money go farther. I strongly recommend you spend money on an accountant (even before you spend money on a lawyer, actually – way before) to advise you.
- Keep excellent records of your expenses. Make a list of the things you use and spend money on in the course of your business so you can discuss these items with your accountant. Some you may have paid for with your business account, while others you paid for with your personal account. They can still be written off at tax time.
- Dive into the IRS page on Deducting Business Expenses to get more info and inspiration. Some people turn this into an art form and others don’t worry about it at all. Just make sure you are honest and it is actually a deduction.
- Hire a good accountant to work with in your business on day 1 that can help you with your strategy or use another accounting service for good information like this.