Non Deductible Expenses
These are items as
listed below that, according to accounting / taxation rules, have to be
capitalized and included in the bookkeeping system as assets. This is
because they are not expected to be consumed or used up within a year so
they cannot be termed as ordinary expenses.
- Inventory (Items purchased for resale)
- Purchase of a vehicle and high cost equipment such as computers or machinery
- Improvements to a fixed asset
- Repayment of principal on a financial loan
- Patents and trademarks
The good news is that depecreciation
on most fixed asssets can be included as a deductible business expense.
Depreciation is the method of annually reducing the value of the fixed
asset due to wear and tear and is spread out over the expected life of
This is something the business accountant will calculate at
the end of the financial year so the bookkeeper does not need to be
concerned with depreciating anything during the course of the year.
However, if you are not using an accountant at tax time then you can
source depreciation rates from the tax department.
Here is one example of how depreciation works:-
Green Handyman brought a computer valued at $2,500.00 and the
computer's life expentancy is three years. The cost price is divided by
three which comes to $833.33 and this is the amount carried to the
profit and loss account each year for three years as a tax deductible
Further to this is amortization which is the same as depreciation but for intangible assets like patents and trademarks.
expense of purchasing inventory is only included in the profit and loss
account as cost of goods sold when the inventory is actually sold.
non-deductible expenses would be personal purchases which need to go to
the equity account called drawings if business funds are used for