An expense write-off will usually increase expenses on an income statement which leads to a lower profit and lower taxable income. Do not confuse a write-off with a write-down. In a write-down, an asset's value may be impaired but it is not totally eliminated from one's accounting books. A write-off is an extreme version of a write-down , where the book value of an asset is reduced below its fair market value.
For example, damaged equipment may be written down to a lower value if it is still partially usable, and debt may be written down if the borrower is only able to repay a portion of the loan value. The difference between a write-off and a write-down is a matter of degree. Where a write-down is a partial reduction of an asset's book value, a write-off indicates that an asset is no longer expected to produce any income. This is usually the case if an asset is so impaired that it is no longer productive or useful to the owners.
The Internal Revenue Service IRS allows individuals to claim a standard deduction on their income tax return and also itemize deductions if they exceed that level. Tax credits may also be referred to as a type of write-off as they are applied to taxes owed, lowering the overall tax bill directly.
IRS allows businesses to write off a broad range of expenses that comprehensively reduce taxable profits. This leads to a lower profit and lower taxable income.
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