i know that everything must be seperate.
however, i don’t believe that i have to write a check for everything i buy personally, that i use for business. it’s like you said, i can log them as accounts payable and take that deduction.
aren’t deductions different from expenses?
i mean, if buy a building for 50,000…with the LLC for business use - that’s a depreciating asset. the expense of the downpayment of 10,000 is recorded under expense (decreasing revenues)…the building is depreciated over time - that’s a deduction.
the expense is the 10,000 out of pocket - which is subtracted from revenues, thus lowering income…
the deduction (depreciation) lowers taxable income further by utilizing appropriate percentages that make up depreciation claim.
now, with the cell phone (getting back to this lol). i pay for it because it is my personal cell phone. however - i use it for business as well. therefore - it is a deductible item, even though the LLC is not paying for it directly…but now - lets say that i have the LLC reimburse me monthly for up to 40% of the cost of my cell phone - now that’s money leaving the LLC to pay for a portion of my personal bill - because i have intent and it is reasonable.
now that’s a direct EXPENSE but then i also receive a deduction because it’s a piece of equipment that is being used for business use.
this is long: From Nolo:
"Because tax deductions are subtracted from income before the income is taxed and not from the taxes you owe, only part of any deduction will end up as an income tax saving. For example a $5,000 tax deduction will not result in a $5,000 income tax saving-it will lower your taxable income by $5,000.
How much you’ll save depends on your tax rate. the tax law assigns a percentage income tax rate to specified income levels. people with high incomes pay income tax at a higher rate than those with lower incomes. these percentage rates are tax brackets.
to determine how much income tax a deduction will save you, you need to know your “marginal tax bracket.” this is the tax bracket in which the last dollar you earn falls. it’s the rate at which any additional income you earn would be taxed.
to determine how much tax a deduction will save you, multiply the amount of the deduction by your marginal tax bracket. if your marginal tax bracket is 25%, you will save 25 cents in income taxes for every dollar you able to lcaim as a deductible business expense.
EXAMPLE: Barry earns 50k and is in the 25% tax bracket. he is able to take a $5k home office deduction. his actual income tax saving was 25% of the 5k deduction - $1250
you can also deduct most business-related expenses from your income for SE tax purposes - the self employment tax rate is about 12% on net SE income (up to $94,200).
In addition, you may deduct your business expenses from your state income taxes…
…so you end up deducting 43% (25%+12%+6%(state)) of the cost of your business expenses from your state federal taxes. for example you buy a 1k computer for your business you end up deducting $430 of the cost from your taxes…in effect the government is paying for almost half of your business expenses."
again the above is the work of Nolo books. not mine.
so…lets say business revenue is 40,000, business buys a computer for 1000 -
my se income is 39,000
THEN i take the deduction for that expense - $430 (43% example above)
taxable income = $38,570