You might be an entrepreneur if…you have the desire to choke anyone who says “And you can just write it off as a business expense!”
Apparently 99% of the general population does not understand what “writing off a business expense” means, which is why it qualifies for a humorous exchange between Kramer and Jerry on Seinfeld:
Jerry : So we’re going to make the Post Office pay for my new stereo?
Kramer : It’s just a write off for them.
Jerry : How is it a write off?
Kramer : They just write it off.
Jerry : Write it off what?
Kramer : Jerry, all these big companies, they write off everything.
Jerry : You don’t even know what a write off is.
Kramer : Do you?
Jerry : No. I don’t.
Kramer : But they do, and they are the ones writing it off.
So what is exactly is a business write off? It’s quite simple, you buy something for the business, and that counts against net income. If the corporate tax were 30% (just to use a nice round number), and your company happened to have a profit, anything you buy would be decreasing your profit, and therefore decreasing the amount of money that is going to be taxed at the end of the year. This doesn’t mean that it’s free, and it doesn’t even mean you get a discount, it only means that you don’t have to pay as much in corporate income tax.
If you’re a business owner at the end of the year and you’ve got $100K in profits sitting in the bank, then yes, you might want to buy all the stuff you know you’re going to use next year right now so that you don’t lose $30K of that $100K to taxes. But if you’re going to buy something you don’t really need, just to avoid paying income taxes, then you might be idiot, but probably just ignorant, which is why I forgive people when they tell me how great it is that I run a business and I can write off all sorts of things, as though I’m just getting them for free. No, it costs me just as much money as it costs you.
Another related misconception has to do with cars and business owners. I own a car, but I can’t have my business pay the car payment, and I can’t write off my car payments, nor can I write off the fuel I buy for my car. Why? Because I only use my car for commuting to and from work, and you can’t write that off. The only time I can write off my auto expenses is if I’m using the car for business purposes, which doesn’t include driving to work from home. If I’m driving to a meeting or to pick something up, then I can write off those miles, and if I were a sales guy or somebody who worked on location then I might be able to write off quite a bit of my car, but I rarely leave my office these days, so no write off of auto expenses for me. At least this is how my accountant has explained it to me.
So the next time somebody tells you to “just write it off,” slap them around the head a little bit for me and explain to them how it is.Liked it? Share it!