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What Are Tax Deductions?
Tax deductions are available for many of your day-to-day business expenses.
These are the costs you incur as a business owner to operate, maintain and grow your business.
This is what tax deductions are and why we love them.
As a result, they affect the amount you pay in taxes at the end of the year.
When we declare our taxes we do three things.
The first thing we do is report all the money we earn. We report our gross income or gross income showing all the money we have earned in everything we do or sell.
The second thing you do is all the costs you incurred to earn the money you earned. These are our tax deductions or simply our business costs.
The last thing that happens is that you get your income subject to taxes and your taxable income is generally similar to the net income we call it.
Definition of net income: Your net income is your gross income minus costs. Your net income is after expenses. When you file your taxes, your gross adjusted income, which is your taxable income, follows the same formula.
Why Record Tax Deductions?
Your tax deductions will affect the amount you pay in taxes at the end of the year.
If your net income or taxable income is adjusted higher, you will pay more taxes.
If it is lower, it will pay less taxes and that is why we focus on maximizing deductions.
Maximizing deductions is making sure you are canceling everything you can do for your business that is appropriate.
In summary, it really is necessary to be clear about what you can take to avoid deductions and pay more taxes.
1) Ordinary Tax Deductions
The first categories for tax deductions small business are called ordinary deductions.
These are the typical deductions of each business.
Now, we will go back a bit as if you were in the United States.
You pay taxes with the IRS and there is a way in which the IRS describes the cost of a business or the deduction of taxes.
They describe these as normal and essential costs for your business.
The good thing about normal commercial costs is that you do not have to justify it to a large extent.
It is not necessary to explain why this is so important.
Advertising and promotion can be an example of a normal tax or a normal deduction.
It is expected that we have to announce a new company and promote it if the company is going to earn money.
We have to market ourselves so that you do not have to say that you are advertising and marketing. This is a normal business cost. One of the things that should be kept in mind about these typical commercial costs is that they tend to follow the typical industry standards.
For example, you are not worried if you are an accountant or an Etsy seller, both advertise.
We will see some other examples of normal commercial costs.
2) Industry-Specific Deductions
The next category is the specific deductions for deductions related to the industry.
These can be places where we begin to confuse tax deductions.
Remember how I said that the IRS considers that the cost of the business is something normal and necessary to manage your business?
Well, now we are talking about the essential part.
Industry-specific deductions are necessary costs for your business.
Someone in an industry will have costs that will be different from the others.
Deductions are divided honestly when people start to get a little confused about the appearance of things.
Divided deductions are business costs that are divided between your business and your personal expenses. A perfect example is the home office of split deduction because part of your home is your personal living space and is part of your home for commercial space.
For example, if you pay $2,000/month and that is your home office, then you have $1,500 personal and it’s a $500 business.
It can be a bit confusing, but this is what I call in cost-sharing.
Another example is the percentage of your cell phone.
We have these neutral mobile phones to which we respond by email and a percentage of the use of mobile and personal phones.
Another example is for the Internet at home.
So we have all these examples of these costs when we combine our business with our personal lives.
For more details, speak to a tax accountant about your situation now by clicking here.
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