What deductions can be taken against business income?

Business income can be reduced by various expenses that are considered ordinary and necessary for the operation of the business. Operating expenses, salaries, and depreciation are all valid deductions because they directly relate to the cost of doing business.

Operating expenses include expenses such as rent, utilities, marketing, and supplies necessary for running the business. These costs are essential for day-to-day operations and help generate revenue, thereby qualifying them as deductible.

Salaries refer to the compensation paid to employees for their labor and services. This expense is critical for most businesses since it ensures that employees who contribute to the operations are compensated. Employee wages are a key part of calculating net income for tax purposes.

Depreciation pertains to the gradual reduction in value of tangible fixed assets over time, such as equipment and buildings used in the business. Since these assets are vital for operations, the IRS allows businesses to deduct a portion of the asset's cost each year through depreciation, reflecting the wear and tear or obsolescence of these assets.

By including these components, business owners can accurately determine their taxable income, ensuring they only pay taxes on their actual profit after deducting necessary business expenses.