How Business Expenses Work
Posted on December 24, 2008
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I am a freelance writer and the sole proprietor of my own writing business. I’ve heard a lot of interesting theories from other writers and entrepreneurs, and sadly, a lot of them are wrong.
The main false notion that I see in others is that business deductions are a way to cheat the government, a way to get out of paying taxes that you rightfully should be. This is far from the truth. Business deductions are simply the expenses and other deductions you take to arrive at a more accurate figure as to what your business made: your net income, as opposed to your gross income.
I find that it often helps to think of business expenses in a sales capicity. Say you sell a specific item for $10. This isn’t really what you made on the item, because it cost you money to buy or make the item in the first place. And if you have employees, you also have to deduct the expense of paying an employee to stock, sell, and ship the item.
Even if you don’t run a sales business, this example may help you to understand what business expenses really are. With some expenses, however, you can’t take them all at once — expenses such as real estate property must be amortized over a certain number of years. The fewer the years, of course, the more of a deduction you get to take each year, so there are services such as cost seg engineering to help you ensure you have your property amortized over the shortest possible period.
As you can see, business expenses are not about “sticking it to the man” or screwing the government over, but just about creating an accurate representation of your business’s income.
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