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A write-off may refer to either an accounting write-off or an income tax write-off. It is also a term commonly used in vehicle insurance to describe a vehicle which is cheaper to replace than to repair.
Accounting
In accounting, writing off is the expensing of a balance sheet asset (item) that has no future benefits. An example would be the writing off of goodwill. That is, the worthless asset will be recorded as an expense on the current period's income statement rather than keeping it on the balance sheet as an asset. Compared to amortization and depreciation the write-off has the character of a "one-time" charge against P&L earnings.
Similar to a write off is a write down. This is a partial write off. Only part of the value of the asset is removed from the balance sheet.
Income tax
In income tax calculation, a write-off is the itemized deduction of an item's value from one's taxable income. Thus if a person has a taxable income of $50,000 per year, a $100 telephone for business use would lower the taxable income to $49,900. If that person is in a 25% tax bracket, the tax due would be lowered from $12,500 to $12,475. Thus the net cost of the telephone is $75 instead of $100.
The use of the phrase "writing off" is sometimes used in a way that suggests the item will be free. The value of the item is only deducted from taxable income, not from the tax itself. The term is also loosely used to refer to an item which is intended for personal use but which will be deducted ("written off") as a business expense. Some individuals attempt to amass large numbers of "write-offs" in order to reach a lower tax bracket and increase the effective size of the deductions.
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