this post was submitted on 11 Feb 2024
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No Stupid Questions

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Let's say that I have this one movie that is finished that I spent 80 million to make. I decided to "write it off". So when I get to pay my taxes, do I get a 80 million discount?

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[–] litchralee@sh.itjust.works 7 points 9 months ago (1 children)

Colloquially, the term "tax write off" has been used to mean one of two things: 1) a tax deduction for expenses against taxable income, or 2) a tax deduction due to a partial or total loss, also against taxable income. In both cases, it's a deduction from the amount of income which the tax rates would apply toward. To be clear, neither would be a tax credit, which is a form of direct reduction in the tax amount to be paid.

The first category includes business expenses, such as amortization of the cost of office furniture, usually over a number of years. This can also include expenses which the government deems especially worthy, such as mortgage interest expenses in the USA.

The second category is for calamities, economical or natural disaster related. Someone losing their coastal home due to land erosion could write off their home, because that asset is now worthless. Or an investor can write off their shares in a film production, if the main actor turns out to have done awful things and no one wants to work on the film anymore. In this category, an asset has been involuntarily or voluntarily given up, with no hope of a recovery, and so the tax code usually allows this to be a deduction against income.

To be clear, a taxpayer cannot just randomly designate stuff to write off. The first category is wholly defined by policymakers, and the second category requires an irrevocable declaration of the asset's worthlessness, such that a future (unlikely) recovery will be a new, separate taxable event.

(n.b. my context is USA taxes)

[–] Drusas@kbin.social 2 points 9 months ago (1 children)

But what about charitable donations?

[–] litchralee@sh.itjust.works 0 points 9 months ago

Charitable donations can fall under both categories. Note that the "categories" I spoke of are just what is used colloquially. The USA tax code doesn't really distinguish all these tax deductions into two neat groups.

A charitable donation can take the form of a business expense, say if a local welding supplier pitches in $100k to sponsor a regional vocational technology fair. They get to be a "platinum sponsor" and a spokesperson will speak during the event, so maybe some of that expense is actually marketing dollars and not purely philanthropic. The tax code may have specific rules, but most donations of this sort tend to be allowed.

Likewise, a charitable donation can be a way to extract a little bit of value from something near worthless. For example, fine art is known to be ripe for abuse in this way, where the donation of the artwork means the "market value" can be written off. But that market is easily distorted, and valuations can vary tremendously. Another example is the donation of development rights, whether or not a development was even possible under the zoning laws at play.

Charitable contributions can qualify as tax deductions because it's viewed as good policy, after balancing the upsides with the loss of government revenue. But some are clearly better policies than others.