How Do Tax Write Offs Work to Lower Your Tax Bill?
Gain a clear understanding of the mechanics behind tax write-offs and how they are used to methodically reduce your overall taxable income.
A tax write-off is a qualified expense that can be subtracted from your income, which lowers the total amount of tax you are required to pay. This financial strategy is available for both individual taxpayers and business entities. The Internal Revenue Service (IRS) establishes the specific rules and qualifications for what constitutes a legitimate write-off, and understanding them is part of strategic tax planning.
The Mechanics of a Tax Write Off
A tax write-off functions by reducing your taxable income. Your Adjusted Gross Income (AGI) is your gross income minus specific “above-the-line” deductions, like student loan interest. From your AGI, you subtract “below-the-line” deductions to determine your taxable income, the figure used to calculate your final tax liability.
A tax deduction, or write-off, reduces your taxable income. For instance, if your AGI is $60,000 and you claim $10,000 in deductions, your taxable income becomes $50,000. If you are in the 22% tax bracket, this $10,000 deduction saves you $2,200 in taxes ($10,000 x 0.22). The value of a deduction is tied to your marginal tax bracket; the higher your bracket, the more a deduction is worth.
It is important to distinguish between a tax deduction and a tax credit. While a deduction reduces your taxable income, a tax credit directly reduces your tax liability on a dollar-for-dollar basis. A $1,000 tax credit lowers your final tax bill by the full $1,000, making it more impactful than a $1,000 deduction for most taxpayers.
Common Write Offs for Individuals
When filing personal taxes, you can either take the standard deduction or itemize your deductions. The standard deduction is a fixed dollar amount based on filing status, age, and blindness. For the 2025 tax year, the standard deduction is $15,000 for single filers and $30,000 for married couples filing jointly.
If your total eligible itemized deductions exceed your standard deduction amount, it is more advantageous to itemize. Common itemized deductions include:
- Interest paid on a home mortgage
- State and local taxes (SALT)
- Charitable contributions
- Significant medical expenses
The mortgage interest deduction is available for interest paid on up to $750,000 of mortgage debt for a primary or secondary home.
The deduction for state and local taxes (SALT), which includes income, sales, and property taxes, is capped at $10,000 per household. For charitable contributions, you can deduct cash and non-cash donations made to qualified organizations. You can only deduct the amount of unreimbursed medical and dental expenses that exceeds 7.5% of your AGI.
Common Write Offs for Businesses
Self-employed individuals, freelancers, and small business owners have a different set of available write-offs. For a business expense to be deductible, it must be both “ordinary and necessary.” An ordinary expense is common and accepted in your trade or business, while a necessary expense is helpful and appropriate for your business.
Common examples of deductible expenses include the cost of office supplies, rent for business property, and utilities. Salaries, wages, and benefits paid to employees are fully deductible. Fees paid to professionals like accountants or lawyers for business-related services can also be written off.
Other business deductions include the cost of advertising, business-related travel, and insurance premiums. If you use your personal vehicle for business, you can deduct actual expenses or take the standard mileage rate. For 2025, the standard mileage rate is 70 cents per mile.
Information and Documentation Required to Claim Write Offs
To claim any tax write-off, you must have documentation to support your claims. The IRS requires proof for the deductions you claim in case your return is selected for an audit. This documentation shows that the expenses were real, paid by you, and qualify under tax law.
For individual itemized deductions, specific records are needed. If deducting mortgage interest, you will receive Form 1098 from your lender. For charitable contributions, you need acknowledgment letters from the charity for any single contribution of $250 or more, plus bank statements or canceled checks for smaller donations. To deduct medical expenses, keep all receipts from doctors, hospitals, and pharmacies.
For business expenses, you must keep receipts, invoices, and bank or credit card statements for all purchases. If deducting vehicle expenses, a mileage log is required, showing the date, mileage, and business purpose of each trip. For business meals, the documentation should also note who was present and the business topic discussed.
Claiming Write Offs on Your Tax Return
After determining your eligible write-offs, you report them on your tax return. The specific forms you use depend on the type of deductions and are attachments to your main Form 1040, the U.S. Individual Income Tax Return.
Individuals who itemize deductions report them on Schedule A, Itemized Deductions. You will enter the totals for each category of expense, like medical expenses, state and local taxes, and home mortgage interest. The total from Schedule A is then entered on your Form 1040 to reduce your AGI and determine your taxable income.
Self-employed individuals and sole proprietors report business expenses on Schedule C, Profit or Loss from Business. This form calculates your business’s net profit or loss by subtracting total expenses from gross income. The net profit or loss from Schedule C is carried over to Schedule 1 of your Form 1040 and affects your AGI.