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Home > Accounting > Question

Which expense is tax deductible:

0
A) Capital purchase of asset
B) Personal expenses
C) Interest expense
D) Drawings

Correct Answer: C) Interest expense

• In strict corporate tax accounting, valid business Interest expense on corporate loans is fully tax-deductible. • Purely private owner expenditures, strictly known as Personal expenses, are never legally tax-deductible. • Money completely withdrawn by an owner for personal domestic use is strictly recorded as Drawings. • Purchasing a heavy long-term asset is a capitalized event; only its gradual Depreciation is tax-deductible. • Because interest reduces taxable income, heavily funding a company with debt creates a lucrative Tax shield.

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