Business expense & Depreciation expense.docx - Sales-COGS = Gross profit-Business expense = Net business income Gross income-Deductions = Taxable

Business expense & Depreciation expense.docx -...

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Sales -COGS = Gross profit -Business expense = Net business income Gross income -Deductions = Taxable income * Tax rate = Tax Compensation damages: You can exclude compensation damages if it is physical injury or illness. Punitive damages: You only need to pay other party which gets hurt by you, but you do not need to pay the court. (it is taxable) Nothing is deductible unless congress says it’s deductible. Business expense: 1. Ordinary (usual) 2. Necessary business expense (make sure that expense can help with your business) 3. Paid on incurred 4. During taxable year 5. In carrying on trade on business (if there is not business, there is no expense) Ordinary v.s Capital expenditure: something is ordinary when it’s not capital expenditure Capital expenditure: costs to make or buy an asset costs that provide significant future benefits (this definition is hard to apply in the real world, because people still want to recognize some of their assets as expense to get more deducts)
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Most advertising costs are deductible. Most wages/salaries/benefits are deductible. Interest paid for using money is generally deductible.
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