Why are business expenses deductible from income, but someone’s basic living expenses aren’t deductible from personal income?
In: Economics
Because they’re entirely different economic entities that operate in different ways.
You can’t tax a business on revenue — a company like a grocery store or an automaker might take in 10’s of billions of dollars in revenue annually, but ends up with only 1-2% left as profits, after paying out 98% to workers’ salaries and benefits, rent on stores/factories, paying suppliers for goods sold/parts used to build vehicles. Compare that to a software company or law firm where profits might be 50% because a few knowledge workers without much capital expense can generate huge profits. But taxing whatever profits are left at the end, no matter the profit margin of the business, can be done. So it doesn’t matter whether a grocery chain made $20m in profits on $1b in revenue or a software made $20m on $50m in revenue, they both pay profits on that $20m in profit.
Oh, and basic living expenses are deductible — that’s what the standard deduction is for… it allows you to have a basic level of income tax-free before you start getting taxed on higher amounts of income.
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