“It’s tax deductible” we all merrily say, while people brand new to business politely smile and nod while not having a clue what we mean.
Lets break it down.
Sales – expenses = profit.
You pay tax on your profit. So in simple terms, more expenses = less profits = less tax.
Sales might be called turnover, invoices, fees, 101 other things. But it all means the same thing.
Low profit = low tax bills. So lets find every expense humanly possible to bring that tax bill down, right?!
Firstly, for expenses to count they need to be wholly, necessary and exclusively for your business. You can’t just grab receipts from your mate and whack them through. They’ve gotta be valid.
Secondly, is the lowest profit possible just to avoid a tax bill what is really best for you? Want a mortgage anytime soon? Any finance? Investment?
If you need any sort of proof of income its best your profit reflects what your profit actually is.
Tax deductible doesn’t mean you’ll be repaid for all the things you’ve bought for your business, it just means it will lower your profit and therefore your tax bill.