Why are business expenses deductible from income, but someone’s basic living expenses aren’t deductible from personal income?
In: Economics
Say you earn $50k working as a full time employee at a company. Yes you get taxed on the full $50k (it’s more complicated than that , but ELI5)
Now you decide to quit and start a coffee shop. You sell $200k in coffee. But you also have to pay your baristas. Pay rent, utilities, insurance, uniforms, marketing, cleaning supplies. There’s also costs to buy the stuff to make and hold the coffee. After all the costs, let’s say you had a net profit of $50k that you can put in your pocket, same as if you would have stayed as a full time employee at your company.
In this scenario, I’m sure most people would agree it does not make sense to tax the business owner at $200k. They should get to deduct their **business specific** expenses and get taxed on the $50k net profit. After that , they’ll be in the same spot as far as what they can or cannot deduct on their personal taxes.
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