Do you get reimbursed when you write-off a business expense?

Question

I'm planning to start a small business, and am wondering.. when you write off business expenses, do you get money back the government or elsewhere?

Some of my planned business expenses are expensive, and I can't afford them if I don't get reimbursed.

Answer 1

No, you don't get reimbursed for writing off business expenses.

I suggest you take a few accounting classes before starting a business as you clearly have no idea how a business functions.

Answer 2

There are two types of expenses: operating and capital.

Capital expenses, which are usually equipment, furniture, specialized software, etc. are depreciated over the course of several years and there are a couple of options for how fast you depreciate. As a simplified example, let's say you have a $10,000 piece of equipment that you straightline depreciate over 5 years. That means you get to claim a $2000 expense each year for five years.

Operating costs: These include office supplies, phone, electricity, rent, labor, travel costs, repairs, materials and supplies, etc. You can deduct all of your operating costs each year.

You will fill out a schedule C when filing taxes.

Now, let's say you brought in $30,000 in gross revenue for the tax year and you had $15,000 in operating costs and another $15,000 in capital equipment depreciation costs. You would subtract $30,000 in expenses from the $30,000 gross revenue, for a net revenue of $0. You then post the $0 on the front side of your 1040, which means you don't have to pay any taxes on your business income.

Warning! The IRS does expect you to eventually start making a profit, so don't think you can use your business indefinitely to "lose" money to reduce your taxable income. You must make at least some profit after the first three years or so to be seen as a legitimate business. There are exceptions to this rule, but your goal should be to make a profit.

Also, don't forget to prepay some tax in case you do make business profit. If you fail to prepay tax (self-employment tax), you can be charged a penalty at the end of the year. The government loves to have its money up front.

Answer 3

You don't get reimbursed for a deductible expense. You subtract it from your income before you figure your tax, so you save a percentage of it, equal to your tax bracket, off your tax bill. For example, if you are in a 15% bracket and deduct an expense of $2000, your taxes would go down by $300.

Answer 4

I'll just stress the above excellent answer: Your business HAS to make revenues which are offset by the COSTS of doing business. I suggest you get help from a CPA to avoid penalties, etc.

Answer 5

No, the government (my taxes) do not pay for a private company's expenses. They do offset any profits though - reducing what you pay taxes on.