Write Off

The term write-off means reduction in the recognized value. In accounting terms, it describes to recognition of the reduced value of the asset or zero value of the asset. In the income tax terms, it means reduction of the taxable income as identification of some expenses needed to earn or produce the income. In the auto insurance, the term write-off is used  in order to describe a vehicle that is cheaper  to replace than to repair, at times colloquially called as being totaled, which means a total loss. Write-off is the act of creating the Debit payment against the Credit and vice versa, in order to nullify the transaction.

In the income tax computation, the write-off is the itemized reduction of the product’s or item’s value from one’s taxable income. Therefore if the an individual has a taxable income of  60,000 dollars per year, a 200 dollars telephone for the business purpose would lower the table income to 59,800 dollars. If that person is in a twenty five percent tax bracket, the tax due will be lowered from 7,481dollars to 7,456 dollars. Therefore the net cost of the phone is 150 instead of 200 dollars. More correctly no income taxes will be due on the write-off/ expense. Therefore the net profit will still be 50 dollars in reduction to the taxes owed. But twenty five percent of 60,000 dollars (taxable income) will be 15,000 and the deduction to 45,000(taxable income) would result in taxes due of 14,950 dollars (25 dollars less).

In the business accounting the write-off is described as an investment (e.g. purchase of salable products or goods) for which a return on the investment is now unlikely or impossible. The product’s potential return is thus removed and canceled from ("written off") the company's balance sheet. General write-offs in the retail include damaged and spoiled goods.

Questionnaire:

• What is Write-off?
• What is write-off in accounting, income tax, auto insurance and in business accounting?