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Someone explain this to me. This is what I understood: If I

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Someone explain this to me. This is what I understood:

If I spend money on my business, I can write it off as a business expense, and get proportionate tax cuts, effectively nullifying that I spent money?
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>>970944
You're thinking about it the wrong way.

Let's say X is a business. If X purchases a laptop for 4 dollars then he won't become any richer or poorer, because he just acquired a laptop worth 4 dollars.
If he sells that laptop for 6 dollars, then he has to substract 4 dollars worth of expenses from those 6 dollars to find out what his profits are.
But if he uses up that laptop, then that laptop slowly becomes worth less. And he becomes poorer.

When the laptop is used to do your business administration, then it aids in the sales, but you don't sell your laptop.
So if you make 100 profit, then you can say: well, to make that 100 profit I had to spend 4 dollars, so I substract that from my profit.
The tax agency might object and say you have to substract that over several years because you keep using the laptop to generate a profit for several years.
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>>970949
>because you keep using the laptop to generate a profit for several years.
And as it ages and you use it it becomes worth less. Meaning you're actually losing money.
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>>970949
>>970955
>if you make 100 profit, then you can say: well, to make that 100 profit I had to spend 4 dollars, so I substract that from my profit.
I follow this...

>The tax agency might object and say you have to substract that over several years because you keep using the laptop to generate a profit for several years
and now I don't. Not sure what the relationship between this idea and the last is. You might try starting from the ground up and explain tax cuts for business expenses from there. My foundation might be shaky, so if you'd be so kind to help me out there, I'd appreciate it.

Somebody was trying to explain this to me recently and from what they said, it sounded like quite the radical concept.
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>>970958
Keep considering what something is worth, how long you will use it for your business and how much it's worth after that.

If you buy a laptop it's worth 1000 dollars.
If you used it for 4 years it's worth 0 dollars and you throw it in the garbage can.
That means you are losing money over the course of 4 years.

In those same four years you are making a profit using that laptop.
So you say: well, I try to match my expenses with my profits, so I'll substract 250 dollars from my income every year.

And after 4 years it all evens out. You became 1000 dollars poorer.
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>>970965
Depending on your local laws you can also get a bit creative with this.

Sometimes you can directly subtract the 1000 from your profits in the first year.
And sometimes you write down it became progressively worth less. And sometimes degressive.
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>>970965
But what if you buy a laptop for $1000 for your business, and you get $1000 tax cut for the business expense? Now, you might say that we're back to the beginning that you are losing money if you're not profiting from it.

But if you were going to lose the money to taxes if you DIDN'T spend it on the business, wouldn't you just be tapping into a pool of money that would otherwise be lost every year? So from that frame of reference, from one's own financial resources, you wouldn't be losing anything?
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>>970970
You've stumbled upon the reason why executive pay is as low as it is - corporate spending accounts.
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>>970980
>the reason why executive pay is as low as it is
My sides!
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>>970970
If you get a 1000 dollar tax cut it means you wrote off your laptop. And you lost 1000 dollars. And the tax agency doesn't give a fuck, because in 4 years that's a reality anyway.

You could say if you get your tax cuts early you could use the money you'd spend on taxes over the course of four years in the first year, and use that to make more money.
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>>970993
But tax agencies often have rules how fast you can write certain shit off.
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H&R Block, in my experience, is totally willing to lie in your (their) favor.
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>>970970
>But if you were going to lose the money to taxes if you DIDN'T spend it on the business, wouldn't you just be tapping into a pool of money that would otherwise be lost every year? So from that frame of reference, from one's own financial resources, you wouldn't be losing anything?
This is true, and a lot of people use it as their choice method for running their business. However, that "pool of money" you're "saving from taxes" by buying stuff (assets) is also the pool of money from which you distribute money to yourself. I have seen several clients get so obsessed with acquiring assets and not paying taxes that they never report a profit, and are cash poor and continually on the edge because they're constantly flirting with massive purchases, loans, and other shit that they technically "invest" into their business (but it usually ends up as them buying the new version of the same equipment every few years) and they don't "invest" in themselves outside of their business because they don't pay some taxes on their profits and take it home to be a part of their home life.

So, unless you are intelligent and not swayed by material wealth (such as enjoying buying shit way too much), you shouldn't use this method carefullly and sparingly, because I have seen most people just use this as an excuse to live on the edge and acquire a lot of uselessly useful things.

I can elaborate further, but your questions could go a lot of directions. Is this real or hypothetical? You want the point of view from a corporation/s-corp or a sole proprietorship? You're basically asking for the accounting rules surrounding time recognition of income and expenses, and for us to elaborate on expensing vs. depreciating an asset. Can you be more specific or is this really just a general question?
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>>970944
Right but the IRS isnt dumb , if you like hunting and make a fake company to writeoff your hunting expenses then youll be audited and fined.
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>>971043
I was kind of interested in real estate. I was talking to a friend who's family is in the business and he was really talking up the idea of taking loans for housing, and using this method to cover the mortgage as well as the expenses for upkeep/hiring property managers. I'm currently not in a position to make this happen, but I feel that it would be something worth knowing.
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It is essentially a discount equivalent to your tax bracket off of the profit your business earned.
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>>971102
Leveraged profits and leveraged writeoffs are the two best reasons to buy RE
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>>971102
yo before u listen to any of this u gotta tell your state or province, shit varies
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>>971102
Just make sure you do the math, because it also means the profits you make from the real estate are taxed.
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>>971109
are you chinese?
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Simple explanation:

In the business world only profits are taxed. Profits are revenue minus expenses, therefor if your expenses go up your profit decreases and you pay less taxes.

When you have a lot of profits it can be beneficial to buy assets which depreciate as expenses (lowering your taxes) but leave you with some residual value.
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