What Is a Write Off? Lessons From Seinfeld and Schitt’s Creek

There is some surprising financial wisdom hidden within both Seinfield and Schitt’s Creek. Before we go any further, though, we need to answer the fundamental question at stake: what is a write off, exactly?

First of all, “tax write off” is not really an official term used by the IRS. Instead, it is an unofficial term that describes certain expenses from the previous year that you may be able to deduct from your federal tax return. For example, you can write off certain expenses for your small business so long as those expenses were ordinary and necessary for running your business.

So far, so good. But here’s the rub: the IRS is very specific about what you can and cannot write off. And unless you happen to be an expert on the United States Tax Code, you are probably very confused about which things you can write off and what will happen if you write off the “wrong” things.

The good news is that our guide will help you learn more about what you can legally write off and how to go about it. First, though, we need to explore the different benefits of writing things off.

Write offs are very popular for individuals and businesses all around the country. But if you have never gotten your own write off, you may be wondering: what is the real benefit of doing so?

The primary benefit is that successful write offs effectively lower how much taxable income you have. And by reducing your taxable income, you can reduce your overall tax liability.

As an example, let’s say that you made $100,000 last year but have $20,000 of things you can write off. This means that when it comes time to pay your taxes, you are only paying tax on $80,000 instead of the full $100,000.

This can be a major game-changer for you, especially if you are self-employed or otherwise own your own business. But that brings us to the next question: are there any drawbacks to writing things off in this way?

So far, writing things off sounds like a winning plan. After all, who doesn’t love the idea of paying less in taxes by the end of the year? Because this may sound “too good to be true,” you may find yourself asking if there are any real drawbacks to writing things off.

Honestly, of all the drawbacks, the most significant is the fact you have to spend money to qualify for a write off.  Thinking about the example above, you still have to spend $20,000.

On top of that, it’s easy to make small mistakes on legitimate write offs. For example, travel expenses are one of the main things that individuals and businesses try to write off. But all it takes is accidentally writing off a personal expense rather than a business expense to potentially land you in hot water with the IRS.

Now that you know a bit more about how writing things off works, let’s look at what the characters of Seinfield can teach us about this tricky topic.

Chances are that you don’t think about taxes when you sit back and watch an episode of Seinfield. However, what characters can and cannot write off is at the heart of the classic episode “The Package.”

If you don’t remember this episode, it centers around Kramer creating a scheme where the Post Office pays for Jerry’s buggy $400 stereo after it is out of warranty. And he claims this will be fine because to the Post Office, an insurance claim on the stereo will just be a business write off.

As you can imagine, the show gets a lot of humor out of the idea that these characters, like most Americans, don’t know all that much about writing things off. But now that you know more about the subject matter, let’s take a closer look at whether Kramer was right or not.

While Kramer is often portrayed as the craziest character on the show, it turns out that he was correct in this instance. In order for the Post Office to claim the insurance payment for a broken stereo, they would simply need to prove that, in the language of the Supreme Court, the expense was both “ordinary and necessary” for the business.

In this case, “ordinary” expenses are some of the day-to-day expenses necessary to run the business. And somewhat redundantly, “necessary” expenses are defined as expenses that are both appropriate and helpful for the business in question.

Kramer’s plan involved destroying Jerry’s stereo and then claiming that it was damaged in transit, setting the whole thing in motion. This is where it gets interesting: one could argue, Kramer was committing fraud against the Post Office by claiming they had damaged property when Kramer was the culprit.

However, the Post Office often operates in good faith based on the claims of consumers. If the Post Office genuinely believes that they damaged the stereo in transit, then they could likely write off the payment they made to Kramer like they do with countless other lost and damaged shipments. 

At first glance, it may seem like Kramer won the day with his bit of Post Office fraud. However, there is a chance that Jerry’s nemesis Newman may get the last laugh.

That’s because the Post Office doesn’t pay income taxes as other businesses do. The Post Office losses are part of the US Federal budget so this event is actually a cost to the taxpayer.  

Fortunately, that scheme helps illustrate some important parts of how tax write offs work. As long as the expenses that your business is writing off are ordinary and necessary towards running your business, they are likely to be eligible as tax deductions. When in doubt, though, don’t be afraid to speak with a reliable tax professional.

While the Seinfield episode is very funny, it’s also relatively old. When you watch the episode, you might wonder whether modern audiences have gotten any more savvy about taxes and deductions in recent years.

Unfortunately, all signs point to “no.” If you need evidence of this, look no further than Schitt’s Creek!

The general premise of the show is that a very wealthy family loses almost all of their money. They are soon kicked out of their mansion and must live in a rundown motel in the titular town of Schitt’s Creek.

At one point, the David, the son, takes a job working in retail. He begins buying a number of items for himself and tells his worrying family that everything (including skincare products and new bedding) is “a write off.” Eventually, this prompts David’s business-savvy father to ask the question: “do you even know what a write off is?”

Eventually, in true comedic fashion, David learns the hard way that he has not unlocked a secret to endless free products. And while we are meant to laugh at his lack of knowledge, the simple truth is that David’s confusion is one that is echoed by business owners all across the country.

David has a basic rationale for the products he is buying and hoping to claim as write-offs. And that rationale is that they are, in some shape or fashion, relevant business expenses.

Specifically, he claims he is testing things that the store he works in will be selling. This includes things like bedding, lamps, and skincare products. To David, the idea that he is testing these products before selling them means that everything must actually be a business expense.

The basic mistake that David made is that his purchases were clearly personal purchases that benefited him and not the store. For example, he would be the only person sleeping on the new bedding and the only person applying the new skincare products.

Because these are personal purchases, they are not eligible as tax deductions. But David’s confusion over what he can and cannot write off is shared by taxpayers each and every year!

You might look at David trying to justify multiple personal purchases as eligible deductions and laugh. But be honest: as a business owner, are you sure about what you can and cannot write off?

Here’s a common example: as a business owner, you may create a wrap for your car as part of your advertising effort.  In spite of this, you cannot simply write off the entire vehicle as a business asset.

Another “rookie mistake” for business owners involves deductions for your business travel. But in order to get a proper deduction, you need to keep track of the miles you have traveled for particular business endeavors. Without such a record, you will be in big trouble in the event of an audit.

Finally, are you reading this because you’re thinking about creating a new business? In that case, you should know there are multiple startup costs that you can write off as deductions. For example, you may be able to deduct $5,000 in expenses for the first year and then get additional deductions for the next 15 years.

As you can tell, there are major write-off opportunities that you might overlook because you don’t know about them. And there are other opportunities that could get you in trouble if you don’t know the specific rules. This is why you need the services of an experienced tax professional.

When you run a business, you know that every dollar counts. And because of that, you might find yourself asking a question: “Can I afford the services of a tax professional?”

The simple truth is that most business owners cannot afford to not have the services of a tax pro. As we detailed above, all it takes is a small error in a tax deduction to trigger a costly audit. And the time, money, and effort that goes into the audit process might put a serious dent in your small business.

Additionally, you could be leaving money on the table if you don’t take advantage of certain deductions. And trust us: the cost of tax professionals pales in comparison to the ability to save thousands of dollars each year!

With a tax professional by your side, you can have the best of both worlds. That means taking advantage of every write off and sleeping soundly knowing that all of your paperwork is perfectly in order!

Now you have the answer to the question “what is a write off?” But do you know who can help you take advantage of all possible deduction opportunities?

Here at SSC, we’re here to take the stress out of filing taxes. To see how we can help your business save time and money each year, just contact us today!