Tax Deductions

Tax Deductions
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Tax Deductions
Sam, a small business taxpayer, should stop having the impression that every dollar spent in his firm reduces his taxable income. The individual should be informed on how to differentiate deductible from non-deductible business expenses. A proper understanding of the tax law and its relation to the deductibility of expenses is crucial for Sam to know why some expenses are not deductible.
When it comes to the deductibility of business expenses, deductible expenses are the ones that are subtracted from the taxable gross income. These business expenses reduce tax liability. Examples of deductible expenses include home office expenses, self-employment tax, entertainment and meals, business mileage, employee wages, nominal value gifts, rent, and advertising expenses (Lanka, 2020). As such, Sam should understand that only deductible expenses decrease his firm’s tax liability.
On the contrary, non-deductible expenses have no impact on the firm’s tax liability. Some business expenses are not deductible since they are not reportable. For example, personal spending lies in the category of non-deducti...