Because penalties for bad behavior shouldn't come out of your tax burden? I dunno if that's what GP meant but it's certainly horrendously unethical enough for me.
Taxes are assessed at a percentage of income. If a fine is deductible, you have lower income, and your taxes are lower, yes. But you paid the government for that right! If your tax rate is 30% and you pay a $1000 fine, you save $300 in taxes. But you paid $1000 for that right!
> If your tax rate is 30% and you pay a $1000 fine, you save $300 in taxes. But you paid $1000 for that right!
What it actually means is that your effective net punishment/fine is $700, irrespective of the headline number. Which matters if the numbers are designed to be impactful.
You’re advocating for having three categories in corporate accounting instead of two: revenue,
costs, and penalties?
Ostensibly the courts would factor in tax benefits to their calculations for punitive damages, under the current system. I don’t believe there are any limits on what punitive damages can account for, beyond “make it hurt”.
Not sure if this is a fine written into law though, which would not be able to easily account for tax differences.
The most common fines and penalties (late fees on federal and state tax returns, are not tax deductible (nor are parking tickets or safety violations).
Insurance is an expense, some insurances premiums are and some are not tax deductible.
Capital Expenses and Equipment, depends, but usually not deductible as a expense but as depreciation over time.
Commuting Costs, generally non-allowable deductions.
Home Office, its tricky and full of bullshit. Same with personal expenses (car/phone)
Political Contributions, tricky and full of bullshit, generally not tax deductible.
Corporate gifts? your deduction is capped at $25.
The Tax Code doesn't have bright-line rules like "every cost" is tax deductible.
That's definitely not true. I'm not an expert in US tax law, but there are a number of important differences between accounting and tax income/expenses:
* Fines, as other people have stated, are usually not deductible. They aren't in Canada, for sure, and they are added back to income (i.e. you're taxed on that amount).
* There is usually a big difference between how leases are treated for accounting purposes and for tax purposes
* Accounting requires that things like accounts receivable to be measured at the expected value. Accounting generally requires an allowance to be booked as an expense for doubtful accounts, even if you don't know which accounts are doubtful. This is usually done on a basis like, historically 2% of accounts are doubtful, so we'll book that expense. For accounting, that's fine, but for tax purposes only actual bad debts are deductible.
* In Canada, capital gains are taxed at 50%, while for accounting purposes 100% of the gain is included in income.
* Capital asset purchases are not deductible, but are depreciated instead over time
* There's limits on things like meals and entertainment. In Canada, only 50% of them are deductible as it is assumed there is always a personal portion to a meal.
So it's not like everything is always deductible, there are many things that income is adjusted for for tax purposes.
not being an accountant as I understand it in my country fines to the tax ministry are not tax deductible. So if this is the case in other countries there would be some legal precedence for saying "fines for this type of offense are not tax deductible"
It depends. If you're a profitable company and the money comes out of a dividend you were going to pay your owners, it's $700 (and the ultimate cost to the owners is less again). But if you're struggling to pay the bills, or the fine is big enough to threaten your operating cashflow, it's a full $1000 you can't spend on new machinery or whatever.
