Answer:
Direct costs are expenses that directly go into producing goods or providing services while indirect costs are general business expenses that keep you operating. But why does the difference matter? Knowing which costs are direct vs. indirect helps you with recording expenses in your books and on your financial statements. For example, you shouldn’t record an indirect cost under “cost of goods sold” on the income statement. Instead, you should list indirect costs under business expenses. You must understand direct and indirect costs when it comes to claiming tax deductions. If you don’t classify direct cost vs. indirect cost and try to claim deductions, you can come under IRS scrutiny.
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