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What is a Tax Write Off? | Tax Deductions Explained - YouTube
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as a small business owner you've
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probably heard a tax write-offs and
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you've probably thought to yourself what
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does it tax write-off because true story
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when do we ever learn about stuff like
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taxes well today I'm teaching you all
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about what tax write-offs are and why
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they matter I've been teaching small
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business owners about business finance
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for over 10 years so if the idea of
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learning about taxes scares you don't
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worry taxes act way cooler than they
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actually are
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once I teach you a few tax basics you'll
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see that you can totally handle the tax
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side of your business
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how do you write offs work write offs
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also known as tax deductions are an
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absolute dreamboat on your taxes because
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they lower your tax liability which
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means that they lower how much your
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final tax bill will be and how much you
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owe the government the reason these
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necessary and ordinary expenses are
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called write-offs or tax deductions is
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because on your taxes you deduct them
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from your total revenue and that gives
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you your taxable profits it looks like
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this total revenue which is just a fancy
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way of saying all your income minus your
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tax deductions equals your taxable
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profits which is essentially your
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personal income so the more tax
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deductions you have the less you're
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going to pay in taxes what is a tax
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write-off now that you know why you
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should love and adore tax write-offs
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let's talk about what a tax write-off is
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attached write-off is also known as a
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tax deduction
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the IRS defines a tax deduction as an
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ordinary and necessary expense for your
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business which sounds a little ambiguous
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so let's break that down
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ordinary means that it's an expense
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that's pretty typical for businesses
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some examples are advertising expenses
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travel meals and supplies most
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businesses will have these types of
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expenses which is why they're called
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ordinary necessary is a little bit
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trickier is an expense that is
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for you to operate your business now
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different industries have different
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needs so while ordinary expenses are
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pretty much the same across all
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businesses necessary expenses will vary
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a photographer's necessary expenses will
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be photography supplies painters
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necessary expenses will be paintbrushes
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a hairstylist necessary expenses will be
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shampoo and hair brushes I think you get
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the gist basically it depends on the
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type of business you have how your
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expense relates to what you do there are
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also tax write-offs I call split
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deductions split deductions are expenses
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that are both personal expenses as in
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not tax deductible and business expenses
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with split deductions you can only write
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off the business portion of the expense
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the personal portion is not deductible
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examples of split deductions are home
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office expenses a percentage of your
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cellphone bill and a percentage of your
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home internet I'm not going to go into
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detail about split deductions but there
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is a blog post linked below called 3
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types of tax deductions and how to track
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them that post goes more in detail about
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split deductions so aren't all business
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expenses tax write-offs um no just
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because it's an expense for your
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business does not mean the IRS will
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classify it as a tax write-off for
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example under under the new tax law
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client entertainment is no longer
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deductible so if you take your client
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out to My Little Ponies on ice you can
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still consider it a business expense
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internally but you cannot claim it as a
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tax deduction most business expenses
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will be tax deductions but it's
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important to know that not every single
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expense will fall under the necessary
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and ordinary umbrella how do I know if I
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can write it off so we've talked a lot
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about necessary and ordinary expenses
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but it can still feel really confusing
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when you're trying to figure out if
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something is really a business expense
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because realtalk as self-employed people
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so much of our personal lives are
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intertwined with our business and of
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course we don't want to be lying on our
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taxes about our deductions or writing
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things off that really aren't business
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expenses so how do you
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sure that you're writing off the right
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expenses well first if it's a legit
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business expense do not fear the tax
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deduction I've talked just so many
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business owners who aren't writing off
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legitimate business expenses because
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they're afraid of the IRS seriously if
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it's necessary or ordinary for your
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business then take the deduction but if
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you're unsure if an expense is actually
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necessary ordinary here are some
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questions you can ask yourself one does
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it have anything to do with my business
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now obviously the answer should be yes
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if it's not yes then you have no
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business trying to make it a tax
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write-off - what does this have to do
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with my business and think this through
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how does this expense relate to your
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daily operations performing your
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services or selling your products three
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is an expense that the IRS has deemed
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non-deductible there's a blog post
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linked below called five write-off
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mistakes that can get you in trouble
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that talks about business expenses that
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people try to write-off but really can't
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for can I justify it to an IRS auditor
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when you get audited you have the chance
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to explain suspicious expenses to your
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auditor if you were talking to an
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auditor do you think you could make a
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compelling case for why this expense is
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related to your business and I say
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compelling I'm not talking about a month
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bunch of mental gymnastics to justify
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something I'm talking about a really
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clear straightforward answer for writing
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it off if not you probably shouldn't
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write it off if you are still unclear
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about an expense keep track of it but
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also make a note to talk to a tax
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professional about the expense also in
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the description I've linked to a bunch
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of blog posts about tax write-offs these
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posts will give you an idea of the types
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of deductions you could be taking for as
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a small business owner and I have
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something super special for you which is
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my biz finance survival kit it's free
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and not only comes with a tax write-off
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cheat sheet but also with four other
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cheat sheets and checklists for your
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small business
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you can download the free survival kit
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using the link in the description below
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if you like this video let me know in
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the comments below what was your biggest
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takeaway and make sure you subscribe to
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my channel because every week I share a
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new video about how to organize and stay
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on top of your business finances I'll
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see you in the next video
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