Governments recognize that businesses create the employment, along with the essential goods and services for the community. At times, an individual or company can accomplish a goal more efficiently than a government bureaucracy. This “social benefit” is the concept behind the tax write-off.
The government has many duties to perform in order to make a viable, successful and growing society. Legislators may consider a certain need for the community, like employment, and offer tax advantages to individuals or businesses who provide that service. This is the basic foundation of the tax write-off.
When individuals or businesses fill out their taxes, they must calculate their tax liability – how much they owe the government. The Internal Revenue Service (IRS) allows individuals and businesses to subtract certain necessary or beneficial expenses from this tax liability. With a lower tax liability, the individuals or businesses save money on their tax returns.
Generally, the tax write-off will apply to necessary business purposes, a special societal goal or a charitable donation. These tax write-offs encourage, induce and reward businesses for accomplishing certain societal goods.
“What is Deductible?”
For individuals, the most common tax write-off is for 501(c) non-governmental charitable organizations, student loans and mortgage repairs. These activities are investments into the future of a better society. The government also has access to cheaper capital and can help individuals and business be more productive.
For businesses, the concept is the “legitimate business expense.” If something is absolutely necessary for a company to operate, then it may be deductible. The most common business tax write-offs are for employee travel, entertaining clients and amortization. The goal of the government is to assist businesses in producing goods and services for the society.
There are more than 100 or so legitimate tax write-offs; a fine line exists between deductible and non-deductible items. Some tax write-offs are limited, up to a certain amount. Others are based on a very specific function, such as guard dogs used only to protect company property or uniforms used only for work. In the final accounting, tax write-offs benefit tax filers with lower taxes, governments with lower bureaucratic costs and society with more social benefits.