If you're operating a business as an individual (sole proprietor), you deduct expenses and only pay taxes on profits.
You can only (legally) deduct business expenses, not just all expenditure.
For example (where I work) you can deduct a cost for a uniform if it’s required for work. But you can’t deduct the cost of a new suit.
[0] This loophole started being closed in the late 90s/early 00s and continues to be closed in the remaining countries that haven't yet addressed it.
[1] https://en.wikipedia.org/wiki/IR35
[2] https://www.ato.gov.au/Business/Personal-services-income/
The purpose of IR35 is to stop people from avoiding national insurance contributions.
If you’re an individual and need to pay for a car to go to the office or supermarket, that’s post tax.
Heating a home is post tax. Heating an office is pre tax.
Say I create a business that receives $2000/m in contracting revenue instead of personal 1099 income. What if this business then acquires a property with a $2000/m mortgage and in turn rents that property to me for $1/mo. As all revenue is consumed by expenses would the business not be taxed? It seems like there has to be a reason why this strategy can not be used to avoid tax on all personal expenses?
> To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.
Your particular example with free or below-market rent would almost certainly be considered tax evasion -- in fact, I believe this is one of the things that Allen Weisselberg is charged with [2].
[1] https://www.irs.gov/pub/irs-pdf/p535.pdf
[2] https://www.bloomberg.com/news/articles/2020-11-02/trump-per...