Writeoffs

Write-offs are accounting and tax actions that remove or reduce the recorded value of assets or income. In general, a write-off is an acknowledgment that something previously recorded has become worthless or non-recoverable, or that a deductible expense has been incurred for tax purposes. In financial reporting, a write-off often takes the form of an impairment, a write-down, or a bad-debt allowance that lowers the asset’s carrying amount or recognizes a loss on the income statement. In taxation, a write-off refers to a deduction or loss that reduces taxable income.

Common accounting write-offs include inventory write-downs when market value falls below cost, bad debt write-offs for receivables deemed uncollectible, and impairment of long-lived assets such as property, plant, equipment, or goodwill when recoverable value declines. Asset write-offs reduce net assets and may affect earnings, while impairment charges typically flow through the income statement and can be reversed only under certain standards.

Tax write-offs include ordinary and necessary business expenses, depreciation and amortization, net operating losses, and charitable contributions that the tax authority may allow as deductions. The tax treatment of write-offs varies by jurisdiction and is subject to limits, substantiation rules, and, in some cases, carryover or carryforward provisions for losses.

Practitioners distinguish between accounting write-offs and tax deductions; although related, they serve different purposes and may not align in amount or timing. Proper documentation and adherence to applicable standards or tax laws are essential when recording or claiming a write-off.