Blog
Ordinary & Necessary Business Deductions
November 24, 2010
Due to a heavy case-load this week and with Thanksgiving tomorrow, this post will be more information than analysis, but hopefully useful for those looking for information on deductible business expenses.
One might initially think it unfortunate that a comprehensive list detailing all the potential deductible expenses does not exist. Keep in mind, however, that businesses vary, so business expenses will vary as well. The truth is that not having such a list is actually a good thing because it gives businesses more flexibility in deducting expenses. The key for businesses lies in justifying their particular “ordinary” and “necessary” expenses.
Ordinary & Necessary Business Expenses. §162(a) of the Internal Revenue Code states that all “ordinary” and “necessary” expenses paid in connection with a trade or business are deductible. “Ordinary” means expenses that are common and generally accepted in the taxpayer’s trade or business. “Necessary” means the expense is both helpful and appropriate for the type of business the taxpayer engages in. And here is the magic phrase that every accountant loves to hear – The particular facts and circumstances for each case must be considered in order to determine whether an expense is ordinary and necessary. This is the magic phrase because this is how accountants make their money.
I said this post would be short, so that is about all for today. Before I go, I want to leave you with a small list of business expenses that are generally deductible.
Generally Available Business Deductions
- Advertising
- Amortization (Deduction of Capital Costs)
- Attorney Fees
- Auto Expenses
- Capital Costs
- Capital Gains and Losses
- Capitalized Interest and Taxes
- Casualty and Theft Losses
- Charitable Contributions
- Commissions and Fees
- Contract Labor
- Computer Software
- Depreciation
- Gifts
- Self-Employed Health Insurance
- Insurance
- Rent or Lease
- Legal and Professional Fees
- License Fees
- Office Supplies
- Payroll Taxes
- Professional Fees (i.e., licensing fees)
- Subscriptions
- Tax Preparation Fees
- Tools
- Uniforms and Work Clothes
- Wages Paid to Employees