Business Tax Write-Offs: How Much is Too Much?

We've decided to start this blog to bring a higher level of tax accounting services and value to our clients and business owners. If you know someone who could benefit from our tips, expertise and advice, we'd love for you to share! In the spirit of tax season, I want to kick off our new blog by discussing tax write-offs for your business. More specifically, I wanted to cover why it's important to think about the big picture when writing things off. In many cases, the short-term gain of excessive write-offs can actually be harmful to you in the long run.

As a small business accountant, it's my job not just to find write-offs you may have missed, but also to tell you when to tone it back. For example, if your spouse runs occasional errands for the business, you might be tempted to write off their mileage, or even a whole company car. Is it really worth it for these kinds of expenses?

The biggest issue to consider is that writing off too much of your income will make it difficult to get financing for loans. This includes business and personal financing, simply because banks like it when you can show income. The most common issue I see business owners run into is struggling to buy a home because they can't show a strong income due to excessive write-offs.

This can also have a long-term impact on the value of your business. If you plan to retire one day like me, you'll want to know what your business is worth should you choose to sell it or transition it to another person. We business owners put our blood, sweat, tears and money into our business, so it's important to look at this business like an asset in our portfolio.

So how do you know when you're writing off too much?

Every business is different and every tax accounting situation is unique. The best thing you can do is have a relationship with your tax accountant. They'll help you strategize the best tax write-offs and think about things you probably shouldn't write off. That relationship shouldn't be limited to having your taxes done once a year, either.

Having a relationship with your tax accountant helps us get a feel for your long-term plans. Going crazy with write-offs isn't always a good idea, but some years it is good to get a tax return. For example, if a contractor buys a large piece of equipment or a new truck, it would be absolutely beneficial that year to write it off and not have to pay any taxes.

It all depends on your unique situation and your plans for your business.