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Is This Income Tax Write Off Legal?
Doug Smith

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A tax write off is not just for corporations and big business anymore. In certain businesses, it is called a write-down. Almost any type of business can incur write-offs, even your small home business. The Internal Revenue service (IRS), the U.S. federal tax authority, allows taxpayers to write off many expenses, as long as they are legitimate deductions. The questionable or downright fraudulent write-offs can trigger the IRS audit flags. You certainly don't want to do that!

Writing off the expense of an item does not mean that item will become free! Instead, it lowers your taxable income, and therefore lowers the amount of taxes you owe. Depending on the situation, sometimes only part of an eligible deductible expense is able to be written off. The key to reducing your tax burden with write-offs is to use well documented and eligible deductions.

One potential tax write-off on your taxes is using a part of your home partially or totally for business purposes. Check with your CPA first, but if you use a room of your house exclusively for business purposes, you are probably entitled to write the expenses off for the upkeep and maintenance of that room. For example, and again, check with your tax professional, if you use a 100 square foot room for business purposes in a 1000 square foot house, you are using 10% of your home for business. Therefore, you just might be able to deduct 10% of your expenses, mortgage, and utilities as business expenses, along with 100% of any office supplies and equipment you buy.

Writing off your home business expenses is often overlooked. Be careful, however. If you buy a new PC for business purposes and spent most of your time playing games on it, it is not being used for business purposes and shouldn't be written off. If you buy an additional laptop computer and dedicate it to business use, that is an appropriate expense to write off.

Business loan interest and bad debts can also be written off of your taxes under certain circumstances. The interest on business-only loans may qualify as a writeoff expense. That shouldn't be the primary purpose in obtaining the loan, however, because you still have to repay it! If you have business clients that cannot or will not pay for products or services you have already provided, even with the help of the courts, these bad debts may well be eligible to be taxable write-offs. It is one way of regaining some of the money you had lost.

Business travel expenses are another potential taxable write-off. The travel expenses need to be reasonably related to your company or business. One source suggests taking a stationery envelope from the hotel room with the hotel's logo on it, and placing all your business receipts in it. Write the trip dates and a trip description on the envelope. If you had entertainment expenses, write the names and companies of the clients you entertained on each receipt. Keep the envelope in a dedicated area set aside for expenses. If the IRS questions your business write off deductions, you can easily prove that you stayed in the motel, entertained clients, and conducted business during the trip.

Keep each tax write off appropriate and well documented, and you shouldn't have too much trouble with the Internal Revenue Service.

Copyright 2008 by Doug Smith.  All Rights Reserved Worldwide.  Unauthorized Duplication Prohibited.  Not Intended to be Professional Advice.

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