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Business Expenses
The major categories of expense are utilities, insurance,
interest, labor, and depreciation. In operating your own
business, there are certain necessary, an unavoidable, operating
expenses; the utilities you pay each month are examples of those
unavoidable expenses. The most often incurred utility expenses
would include water, electricity, waste removal, telephone, and
cable expense. It would be impossible to operate a successful
business, without access to the above listed utilities. These
costs on a monthly basis will normally run into several hundred
dollars, if not into the thousands of dollars; the ability to
deduct these expenses, on the income tax return is a way to
recoup some of the expense and avoid high tax liability.
Insurance expense can be a tremendously expensive business
expense, but a necessary one. Not one lending institution will
all money for a business to operate without being assured that
there will be general liability insurance, renter's insurance,
or Worker's Comp. insurance purchased by the business owner.
Carrying insurance is just a continuation of the need for
assurance that in the event a disaster should strike, the
business will not be a complete loss. It should be noted here
however that insurance expense can be an insurmountable
roadblock if the business has not properly anticipated the
expense associated with the purchase of the insurance; quite
often, they insurance expense will depend in part upon the
revenue generated by the business. Greater revenue you and
profitability levels often increase the amount of insurance,
you're required to purchase each year, and it also affects the
premium that you pay each year.
Interest expense, is sometimes an optional expense; however, if
you have a loan against your business you're going to pay
interest expense. If you operate your business and purchase
products own credit from a vendor and you don't pay the bill you
will pay interest there, also. As with homeowner's mortgage
interest, business credit interest is completely tax deductible
to the business, but the business must be able to survive until
the year's end in order to reap the benefit.
Labor expense will be the most money consuming expense, a
business will ever incur. When you account for the wages paid,
the taxes pay, and a liability associated we of the need to meet
payroll expense on time. This can be listed as the single
greatest contributor to business bankruptcy or failure. Of
course, this is a two-sided coin. A business cannot stay open
and operate without the necessary labor; the necessary labor
will not stay and work without necessary pay. So if you are able
to pay, your employee's wages, you will be able to retain
employees. It should be noted here, however, that most often
it's not the employee's paychecks that the business owner has
trouble covering, if the tax liability that must be paid by the
15th day of each month. The tax liability has managed to accrue
over the period of a month and often the business owner does not
anticipate the enormity of the tax that will be due.
The last expense of business owner is able to deduct is known as
depreciation. Depreciation is not a direct dollar paid expense
for the business, it is however, and expense the benefits the
business owner greatly during tax season. Any equipment fixtures
or other capital investment, the owner has made in their
business, will have what's known as a "useful life". The length
of the useful life of the equipment will determine the amount to
be depreciated each year. There are two different methods for
depreciation, there's the straight-line method and there's the
modified accelerated cost recovery system that used by most
accountants for business owners to their benefit.
About the author:
Tony Robinson is a Webmaster and International Author. Visit
http://www.tax-portal.com/ for his tax tips.