Q: I have often heard the phrase *it can be written off against tax" in relation to business. For example I was told that here in Ireland a business can claim all interest on a loan against tax. Could someone possibly explain to me how this is calculated? I understand that interest is an expense on the profit and loss account but does that have anything to do with it? Help is greatly appreciated :) Could someone give me an explanation on how it is calculate please?
A: A business is TAXED on it's PROFIT. Basically, PROFIT = RECEIPTS (income) - COSTS (expenditure) ... To reduce TAX, you reduce Profit .... this is achieved either by decreasing Recipts (eg. writing off Bad Debt, selling old stock at a loss) or increasing Costs (eg paying Interest on a Loan) ... The only way to eliminate Tax is to eliminate Profit :-) (do it too much and you end up eliminating the business)
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