How to Do Tax Write Offs to Reduce Your Taxable Income

Tax write-offs, or tax deductions, are expenses taxpayers subtract from their gross income. This lowers the amount of income subject to taxation, reducing overall tax liability. Deductions acknowledge costs incurred by individuals or businesses for earning income or supporting public policy goals, such as charitable giving. This article explains how to identify eligible expenses, maintain documentation, and claim deductions to reduce your taxable income.

Understanding Common Deductible Expenses

An expense qualifies for a tax deduction if it is “ordinary and necessary” for earning income or for a specific purpose outlined by tax law. An “ordinary” expense is common in your industry, while a “necessary” expense is helpful for your income-generating activity. These criteria distinguish legitimate deductible expenses from personal spending.

Many taxpayers benefit from “above-the-line” deductions, which reduce gross income to arrive at adjusted gross income (AGI). Lowering AGI can determine eligibility for other tax credits and deductions. Examples include Health Savings Account (HSA) contributions and student loan interest payments.

Health Savings Account (HSA) contributions are tax-deductible, even if you do not itemize. For 2025, individuals with self-only coverage can contribute up to $4,300, while those with family coverage can contribute up to $8,550. An additional $1,000 “catch-up” contribution is permitted for individuals age 55 or older.

Interest paid on qualified student loans is deductible, up to $2,500 per tax return annually. The loan must be for education expenses for yourself, your spouse, or a dependent. You should receive IRS Form 1098-E if you paid $600 or more in interest.

Traditional Individual Retirement Account (IRA) contributions may be tax-deductible, depending on income, filing status, and workplace retirement plan coverage. For 2024 and 2025, the contribution limit is $7,000, with an extra $1,000 catch-up contribution for those age 50 and over.

Educators can deduct up to $300 in unreimbursed business expenses for classroom materials. This deduction applies to eligible K-12 teachers, instructors, counselors, principals, or classroom aides working at least 900 hours during the school year. Married educators filing jointly can deduct up to $600, with a maximum of $300 per person.

Some taxpayers may benefit from itemizing deductions, which are subtracted after AGI. Itemizing is beneficial if your total eligible expenses exceed your standard deduction, a fixed amount based on filing status. For 2024, the standard deduction is $14,600 for single filers and married filing separately, $29,200 for married couples filing jointly or qualifying surviving spouses, and $21,900 for heads of household.

Common itemized deductions include:
Medical expenses
State and local taxes
Home mortgage interest
Charitable contributions

You can deduct qualified, unreimbursed medical expenses exceeding 7.5% of your adjusted gross income.

State and local taxes (SALT), including income, sales, real estate, and personal property taxes, are deductible, subject to a combined annual limit of $10,000 per household. Home mortgage interest is also deductible, generally limited to interest on the first $750,000 of mortgage debt for a primary or second home. A higher limit of $1 million applies for mortgages incurred before December 16, 2017.

Charitable contributions to qualified organizations are deductible if you itemize. Cash contributions to public charities are limited to 60% of your adjusted gross income, while appreciated property contributions are limited to 30% of your AGI. Contributions exceeding these limits can be carried over and deducted for up to five years.

Essential Record Keeping for Deductions

Maintaining accurate records is important for substantiating any tax deduction. The Internal Revenue Service (IRS) requires documentation to support reported expenses. Proper record keeping provides proof if your return is selected for an audit.

Record types vary by deduction but commonly include:
Receipts
Invoices
Canceled checks
Bank or credit card statements

For business mileage, a detailed log showing dates, destinations, and purposes of trips is important. Appointment books or calendars can also support specific activities related to deductible expenses.

You can organize records using physical files or digital solutions. Digital methods, like scanning receipts and storing them on a computer or cloud service, offer easier search and retrieval, plus protection against damage or loss.

Tax records should be kept for three years from the date you filed your original return or two years from the date you paid the tax, whichever is later. Keep records longer for specific circumstances, such as six years if you underreported income by more than 25%. Property records should be kept for as long as you own the property plus three years after disposal.

Claiming Deductions on Your Tax Return

When preparing your tax return, choose between the standard deduction or itemizing. The standard deduction is a fixed amount based on your filing status. Itemized deductions involve listing specific eligible expenses. Compare your total itemized deductions to your standard deduction and choose the option that results in lower taxable income.

Many “above-the-line” deductions are reported on IRS Form 1040, Schedule 1. Student loan interest is reported on Schedule 1 and requires information from Form 1098-E. HSA contributions are reported on Schedule 1, often with details from Form 8889. Deductible traditional IRA contributions are also reported on Schedule 1.

If itemizing is more beneficial, use IRS Schedule A, “Itemized Deductions.” This form categorizes deductible expenses. Medical and dental expenses exceeding the AGI threshold are reported on Schedule A. State and local taxes, including income, sales, and property taxes, are entered on Schedule A, subject to the annual limit.

Home mortgage interest, usually reported on Form 1098, is entered on Schedule A. Charitable contributions, cash or noncash, are reported on Schedule A. Each category on Schedule A has specific rules and limitations. Once calculated, the total itemized deductions are transferred to your main IRS Form 1040.

Tax preparation software can streamline this process, guiding you through deductions and forms, and calculating the greatest tax benefit. A qualified tax professional can also assist in identifying, calculating, and reporting deductions, ensuring compliance and maximizing tax savings.

Deductions Specific to Business and Self-Employment

Self-employed individuals and small business owners have a broader array of deductible expenses tied to their business activities. These deductions allow taxpayers to subtract the costs of earning business income, reflecting the enterprise’s net profit. Most expenses are reported on IRS Schedule C, “Profit or Loss from Business (Sole Proprietorship).”

The home office deduction is available if a portion of your home is used exclusively and regularly as your principal place of business. You can calculate this using a simplified method (standard square footage rate) or the regular method (actual expenses like utilities, rent, and depreciation allocated to the office space). Each method has specific criteria.

Business travel expenses are a common deduction, including costs for transportation, lodging, and 50% of meal costs incurred while traveling away from your tax home for business purposes. Vehicle expenses can be deducted by tracking actual costs (fuel, oil, repairs, insurance, depreciation) or by using the standard mileage rate.

Other business deductions include operational costs like supplies, equipment, and software necessary for business operations. Advertising and marketing costs, such as website development or online ads, are also deductible. Professional development and education related to improving business skills can also be written off.

Business insurance premiums, covering liabilities or property, are deductible. Contributions to self-employed retirement plans, such as a Simplified Employee Pension (SEP) IRA or a Solo 401(k), offer tax advantages by allowing tax-deductible contributions that grow tax-deferred. Self-employed individuals can also deduct health insurance premiums paid for themselves, their spouse, and dependents, if not eligible for an employer-sponsored plan.

While Schedule C is the primary form for sole proprietors, businesses structured as partnerships report their income and deductions on IRS Form 1065. Corporations, depending on their structure, use forms like IRS Form 1120 or Form 1120-S. Regardless of the business structure, the underlying principle of “ordinary and necessary” applies to all deductible business expenses, ensuring they are common and helpful for the specific industry.