Admissible and Inadmissible Deductions An admissible deduction is one that can be legitimately claimed against a company's taxable income. It is one that...
An admissible deduction is one that can be legitimately claimed against a company's taxable income. It is one that directly relates to the business or profession and is allowed by the tax law.
Examples of admissible deductions include:
Salaries and wages: The income earned by the business owners and key employees.
Business expenses: These are costs directly incurred in the course of running the business, such as rent, utilities, and marketing fees.
Depreciation: The value of the business assets that are used in the production of goods or services.
Interest expense: The cost of borrowing money to finance the business.
Tax losses: These are losses that the business can deduct from its taxable income.
Inadmissible deductions are those that cannot be claimed and are not allowed by the tax law. They are not directly related to the business or profession and are not considered by the tax authorities.
Examples of inadmissible deductions include:
Personal expenses: Personal expenses of the owners or key employees, such as travel, entertainment, and medical bills.
Gifts: The value of gifts received by the business owners or employees.
Non-deductible expenses: Expenses that do not contribute to the production of goods or services.
Deferred tax: Tax payments that are made in advance but not paid in the current tax year.
Foreign income: Income earned by non-residents working in the country.
It is important for businesses to keep accurate records of all expenses and to be aware of what deductions are allowable according to the tax law. Failure to do so can result in penalties and interest, which can significantly impact the business's profitability