Look, taxes are the single greatest expense that most people will pay over the course of their lives.
Not your dream house, not your dream car, or any other tangible thing you can put your hands on. It’s taxes.
Believe it or not, taxes are evading almost every single part of your life. You pay taxes on your income, on your purchases, the property you own, and so much more.
But what if you could write off almost anything that you purchased?
What if we told you that taxpayers are leaving millions of dollars on the table by not taking full advantage of the tax code?
Look, there are over 80,000 pages in the tax code, and on one of those pages, it allows you to deduct almost anything.
Just take a look for yourself.
Section 162 of the internal revenue code says that you can “deduct all ordinary and necessary expenses paid or incurred during the taxable year to carry on any trade or business”.
So get ready because, in today’s post, we’re going to explain how you can write off almost anything.
Today, we’re going to teach you how to write off anything – well, almost.
What we’re about to tell you isn’t a “tax loophole” that can get you in trouble. In fact, it’s quite the opposite.
Tax write-offs and deductions are available for everyone.
It’s, quite literally, written as part of the tax code to incentivize people to take action to grow the economy.
The problem is that most people are intimidated by tax deductions and write-offs so much, so that they don’t take them at all and wind up paying way more in taxes than they have to.
In fact, some experts say that the average person will spend 25 to 35 percent of their entire life working to pay taxes.
Just think about that, 25 to 35 percent of your life. Not being spent to pay off your rent or your mortgage. Not to invest in stock markets, real estate, or your business.
But no, literally, just to pay taxes to the government.
By the way, speaking of stock and real estate, we have another post that discusses which is the better investment – stocks vs real estate investing. Be sure to read that next.
The Tax Code is Not Your Enemy
What’s even crazier is that a lot of people think that the tax code is their enemy.
But the tax code is not your enemy. It was not written to just take your money.
It was written to grow the economy, boost jobs, provide affordable housing, and promote many initiatives that the government relies on to provide for its citizens.
Therefore, if you can make the tax code your friend, then you will be able to benefit from how it was written.
Just think about it.
If there were no businesses, there would be no jobs. That would be a disaster, right?
So the government allows business owners to take write-offs that are not available to employees.
Or how about real estate? If there is no housing, people would not have anywhere to live. That would be chaotic, right?
So the government encourages real estate investors to invest in real estate…
…by allowing them to write off things like depreciation and so many more things that are not available to average taxpayers.
So what’s our point here?
Our point is that you can lower your tax bill, not by cheating the system, but by instead aligning yourself with the incentives that lie within it.
If you stick around until the end of this post, then you are going to know more about how taxes work and how you can take advantage of tax write-offs to lower your income.
With that said, let’s break this all the way down.
What are Tax Write Offs and Tax Deductions?
First of all, tax write-offs and tax deductions refer to the exact same thing.
So anytime you hear someone say tax write-off, just know that they are referring to tax deductions.
Ultimately, tax deductions are eligible expenses that you can deduct from your taxable income.
Now, there are two different types of taxpayers – average taxpayers, which would be wage earners.
And then there are super taxpayers, who are primarily business owners and investors.
You’ll see that the super taxpayers reap the most tax benefits, because they align themselves more closely with the interests of the government.
The “Average” Taxpayer Write Offs
The average taxpayer is someone who has a job, family, and mortgage or rent.
The tax code was written to provide for the average taxpayer, rather than to incentivize them.
The government wants to make sure that this person has access to jobs, affordable housing, healthcare, and so forth.
Therefore, the tax code does not incentivize the average taxpayer as much. Average taxpayers, like wage-earners, are very limited in what they can deduct from their taxes.
But, they can take the standard deductions or itemized deductions.
The standard deduction is available to all taxpayers. For instance, in 2021, single taxpayers can deduct $12,500 from their taxable income, and married taxpayers can deduct about $25,000.
So for example, if you’re married and have $100,000 in income, you can immediately deduct $25,000 from your taxable income, and only pay taxes on the remaining $75,000.
Or you can itemize your deductions if you have certain expenses that exceed the standard deduction.
Itemized deductions allow you to deduct things like your home mortgage interest, property taxes, charitable contributions, and other specific items.
The idea here is that if your itemized deductions exceed your standard deduction, you should itemize to lower your tax bill.
For example, if you are single and have $15,000 in itemized deductions, then you should itemize since the standard deduction is only about $12,500.
Other than taking the standard deduction or itemized deduction, there is very little that the average taxpayer can do to lower their income taxes…
…outside of contributing to a retirement account to defer taxes until a later date.
Therefore, if you’re an average taxpayer who wants to take advantage of the tax code to write off almost anything, you have to find a way to contribute to the economy through business or real estate.
You want to become a super taxpayer.
The “Super” Taxpayer Write Offs
Super taxpayers are business owners and investors. They can deduct almost anything from their income given the right circumstance.
The tax code we showed you earlier referred specifically to business owners.
As long as the expense is a business or investment expense, they can deduct it.
And if that business expense provides a personal benefit, then that is a plus of being a super taxpayer.
So in general, if the purpose of the expense is to produce more income, then it can likely be deducted.
That’s why super taxpayers can deduct business meals – as long as they are eating and discussing business, they can deduct that meal from their income.
Super taxpayers can do vehicle tax deduction – as long as the vehicle is being used for business or is being used to advertise that business, they can deduct it.
Super taxpayers can deduct some of their home mortgage, utilities, and property taxes – as long as they are using a portion of their home to conduct business.
For instance, a home office or a basement that you are storing inventory in or something.
Super taxpayers can even deduct their vacations – as long as they do some type of business during that vacation period.
For instance, a real estate investor might be able to deduct a vacation if they were looking at real estate in the area they are traveling to.
As you can see, super taxpayers can deduct almost anything – food, vehicles, housing costs, travel, and more as long as it is used to help them produce more income in their business.
But many super taxpayers are afraid of taking these deductions.
Like, just last week, some of our YouTube subscribers asked us:
- Can I write off my merchant expenses from Stripe?
- Can I write off the eBay fees I pay when I sell my products?
- Can I write off company t-shirts that I use to advertise my business?
That’s all yes, as long as these are legitimate business expenses, you can write it off!
You don’t need to be afraid of tax deductions, it’s literally written in the tax law.
The problem with deductions only arises when you start claiming personal expenses as business deductions that have nothing to do with your business.
Like you can’t just buy a Porsche and write it off from your business without it serving some business purpose.
If you are wine and dining clients, using it to travel from one business to another, or even using it to advertise your business, then you may be able to deduct the expense from your income.
Business owners are able to write-off almost anything, as long as it meets a few basic requirements.
What are Eligible Expenses?
According to the tax code, the expense must be ordinary and necessary for carrying on the business.
Now, the tax law does not specifically define what ordinary and necessary means.
Therefore, it is up to you to determine what expenses qualify as “ordinary” and “necessary” for your business.
Now, the IRS does attempt to define this in a publication.
According to the publication, an ordinary expense is one that is common and accepted in your business or trade.
And a necessary expense is one that is helpful or appropriate for your trade or business.
For example, an ordinary and necessary expense for a car dealership might be buying car parts.
While for our accounting firm, it might be technology and software. Surely, we couldn’t deduct car tools for our accounting business.
Maybe if those car tools were being applied to a vehicle that was being used for business, then sure.
But the idea is that you can’t just start buying anything and writing it off. That’s when you can start getting into some big trouble with the IRS.
Steps on How to Write Off Anything (Almost)
Step 1: Start a business or become an active investor
Remember, tax deductions benefit business owners and investors the most.
A lot of people think that this means they have to be wealthy to take advantage of the tax law.
These tax deductions are available for all business owners and investors, regardless of how much money you make.
In fact, there are specific deductions that are made for new business owners, like the startup and organization costs deduction that allows you to deduct your startup expenses.
And we did a post on this already, but anyone can start a business. We did an entirely separate post on how to start a business without money.
In fact, we started our first business with as little as $200.
Step 2: Make sure your expenses have a business purpose
If you want to deduct almost everything, you need to make sure almost everything you buy has a business purpose.
For this, we want you to think of the worst-case scenario here. Let’s say the IRS audits you and wants to learn more about the deductions you claimed.
In that event, you want to be able to confidently explain to the IRS how the expenses you claimed as deductions were used to benefit your business.
As long as that is in accordance with the tax law, then you shouldn’t have anything to worry about.
Step 3: Make sure you document everything
The third step is to make sure that you keep up with your documentation, like your receipts or invoices.
Again, in the event of an audit, you don’t want to be all over the place.
If the IRS asks for more information on your deductions, all you need to do is show proof of the expense and what it was for.
That’s it. But if you do not keep up with the receipts and invoices, then you may have a difficult time proving that the expenses were legitimate business deductions.
So make your life easy by just keeping track of your receipts for your business expenses
Step 4: Claim the deductions correctly on your tax return
When you file your taxes, whether you’re doing it yourself or a tax preparer is doing it for you, make sure you claim your deductions correctly.
Specifically, make sure you are categorizing your expenses into the right places on your tax return.
There are specific categories for each type of business deduction, so you will want to make sure you insert the right amounts in the right categories.
You should be doing your bookkeeping throughout the year, which should make it very easy to tally up the totals and that to your tax return.
But ultimately you need to make sure you do this correctly, because any errors could trigger an audit.
So there you have it, those are the steps on how to write off anything. If you think you can save more on taxes but are just not sure how to do it, then contact us today!