A write-off is the removal of an asset's value or the deduction of an expense against income, reducing taxable profit, commonly used for bad debts, obsolete inventory or business costs.
"Write-off" is used loosely to mean two related things: deducting a business expense against income to reduce tax, and removing the value of an asset that no longer has worth, such as an uncollectible receivable or obsolete inventory. In both cases, profit and taxable income fall.
The popular idea that a write-off makes something "free" is a myth: a deductible expense reduces tax only by your marginal rate, so a $1,000 write-off saves perhaps $120 to $270 in tax, not $1,000. The expense must also be genuine and reasonable, spending money purely to "get the write-off" always leaves you poorer.
You hold $5,000 of inventory that has become unsellable. You write it off, removing it from assets and recording a $5,000 expense, which reduces your taxable income by $5,000 and your tax by your marginal rate on that amount.
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