Why are business expenses deductible from income, but someone’s basic living expenses aren’t deductible from personal income?
In: Economics
There’s a different logic behind the two taxation forms.
A business is necessary for the economy. If you kill a business then you basically kill your own economy. A business expense is a necessity for running the business (like, buying a truck or maintaining a website). The assumption is that a business won’t buy golden business cards just so they deduct it from tax, because they have to pay the price of a card either way and it won’t generate more businesses. So the logic is: let’s see what the business produced after removing the necessity costs, and lets assume they will just do rational purchases (in general they tend to do) that’s really necessary to run the business. Then let’s tax the surplus.
It’s also important to notice that a business has the power to build the taxes into their prices, so taxing without deductibles would just cause inflation.
While as a private person, the logic is that you would maintain a luxury life standard if you had enough money , so if you would be allowed to freely claim living costs, you would just move into a bigger house and claim it as necessary. The state could never tax anyone because everyone would play the system in order to avoid tax. One bigger car, one bigger house, one more mortgage. So a private person is taxed in advance and must set the living standards to what’s left.
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