Apr

24

Tax Relief - Business Expense

April 24, 2008 |

Finance is one industry that can show off a high percentage of six figure salary earners and the reason is obvious. There is no industry which can function and develop without money. If you see, just in USA hundreds of company start each day. To name a few doctors, lawyers, education, manufacturing and more they all need money.

Business expenses are normally tax deductible. The general rule is that any expenditure necessary for running the business is deductible and enjoys tax relief. However, it is important to understand the nature of expenses and how and where they figure in your accounts.

There are some expenses of business which go towards the cost of goods. Examples of such expenses are purchase cost of raw material, freight, wages paid to factory workers and direct factory expenses. The inventory at the beginning and the end of the year is valued for arriving at the cost of goods. The difference between sale receipts and cost of goods sold gives the figure of gross profit. When an expense is taken to arrive at cost of goods sold, it should not be used for getting tax relief by deducting it again as business expense, as that constitutes duplication.

There are other expenses of business, which can not be deducted because they are in the nature of investment into assets of enduring value. Examples of such expenditure are amounts spent on purchase of machinery or factory and office building and similar assets. Such expenses are capitalized and only depreciation claim is allowed against such expenses.

Some expenses of business may be personal in nature as for example, personal traveling expenses. These expenses do not enjoy any tax relief.

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