how do business expenses work?

Question

I’ve seen mention of classifying purchases as a business expense, and im not certain how it works. what benefit is it to have something be a business expense, and what are the actual qualifications for something counting as one? (I am in the us but it would be interesting to see how this works in other countries as well)

In: 5

Answer 1

it depends on the business. Im self employed, so in a simple explanation if your business makes $100,000 in one year, you DONT want to pay tax on that 100,000…so you have records of expenses. So 100,000 ‘gross’ income, minus your products, advertising, payroll, utilities, rent etc….so lets say after all the business deductions now your ‘income’ is only 50,000. So you pay tax on the 50,000 not the 100,000.