With Receipt but still Unable to Deduct Expenses for Tax Purposes?

Being savvy in business means not only knowing how to earn but also how to save. Understanding tax deductions is an important topic. 

However, there are still cases where small and medium-sized enterprises (SMEs) are well-prepared with proper documentation and records but are unable to deduct expenses for tax purposes. 

Business owners should quickly find out why to avoid becoming the next case!

● Matching Concept

According to tax regulations, all expenses related to generating business income are eligible for tax deductions. However, if the expenses are deemed non-essential, they cannot be deducted. 

Accountants annually perform a matching process for their clients’ expenditures and revenues, consolidating all business-related expenses and applying for tax deductions in the appropriate tax year. 

This saves business owners from the hassle of determining which expenses qualify as relevant expenses.

● Timing Matters for Tax Deduction Applications

As mentioned earlier, tax deduction applications should be made in the “appropriate tax year” because expenses and revenues from a single business project may occur in different tax years. 

This is common in projects for public relations or marketing companies. For example, if a client plans to launch a new product in mid-2023, the pre-production work such as filming, scriptwriting, producing promotional materials, and renting venues may have taken place in the previous year and incurred related expenses.

Accountants will defer expenses without corresponding revenues to the tax year when the client can “match” them, in accordance with the Matching Concept. 

However, many business owners have already reported the expenses in the year without any revenue, inadvertently not complying with the Matching Concept. 

Although they have complete documentation, they are unable to deduct the expenses for tax purposes. 

There are various forms of business collaborations, and it is advisable to seek the advice of professional accountants to tailor the most ideal tax planning strategies.

With the right people and the right actions, everyone can become an expert.

 

 

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