Question

How are business expenses treated in regards to tax legislation?

Answer 1

The tax business income allow deductions for business and trade expenses. To be deductible, a business expense must be both ordinary and necessary, and usually only include activities undertaken for profit.

We cannot deduct the following expenses:

• expenses, which are already included into figuring cost of goods sold and gross profit for the year;

• capital expenses;

• personal, living, or family expenses.

However we can deduct the following expenses:

• expenses for the business use of home;

• expenses for the business use of car;

• employees' pay;

• retirement plans;

• rent expense;

• business interest expenses;

• various federal, state, local, and foreign taxes

• insurance.