Ron Mutascio is a certified public accountant with a business office located at 415 Belgrade Ave., West Roxbury.
Patch: What is a write-off? I've heard about it. There's even that famous funny clip on 'Seinfeld' when Jerry and Kramer joke about not knowing what a write-off is, but businesses "just write it off." And more importantly what are some easy write-offs for the average person - and how do they go about making sure they have the right info to "write something off"?
Mutascio: This week we are going to look at a commonly used phrase that is used in a variety of ways. The phrase is write-off. It can be used as 'I’ll just write it off,' 'it’s a total write-off,' 'don’t worry my tax guy will write it off', or the dreaded 'lets write this idea off and chalk it up to experience'. My favorite write-off was an idea to cook freshly made meatballs on a skewer over a Hibachi. When I turned the skewer over, the meatballs began disintegrating and landing in the ashes like snowflakes falling. That night I decided to write-off the idea of cooking meatballs on the grill and ordered Chinese takeout.
The term tax write-off is not quite the same as disintegrating meatballs. It pertains to expenses incurred by a taxpayer that the Internal Revenue Service considers expenses necessary for the preservation or production of income.
For example, let’s say you have an investment account with Merrill Lynch which contains various stocks and bonds. During the year your investment advisor at ML will monitor the assets, collect any dividends and perhaps buy or sell different securities in the portfolio. For that service you are charged an investment fee which is deductible or written-off as a miscellaneous itemized deduction. This expense was incurred in the preservation of income, as the advisor’s actions are performed on your behalf to protect you against the perils of investing in the stock market.
The term production of income is generally thought of as a business expense. For example, you are operating a small business that polishes apples before they are sent to the various supermarkets for sale. In the operation of this business you incur operating costs such as telephone expenses, electricity to run the polishing machine, rent to store the apples, truck expenses to ship the apples, etc. These expenses are written-off as an expense incurred in the production of income.
However, in the normal scenario the guy who boasts the loudest over a few beers with his buddy that his accountant writes-off everything is generally only half correct. The IRS allows numerous items to be written-off as tax deductible expenses on your tax return. The majority of these items are taken as miscellaneous itemized deductions on you return.
Some of these items include the tax preparation fee, specially designed uniforms and protective clothing, union dues, IRA custodial fees you paid from personal funds, job hunting expenses and the always popular unreimbursed employee business expenses.
Yes, these items are write-offs, but the amount deductible is limited to the excess deductions which exceed two percent of your adjusted gross income. This means that if your adjusted gross income is $100,000 you will be allowed anything over $2,000. The write-offs below that $2,000 threshold are disallowed as a deduction. They are reflected on your tax return, but only for information purposes. So when you hear someone tell you he writes-off everything, don’t believe them, they just think they do.