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To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. 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.

Even though an expense may be ordinary and necessary, you may not be allowed to deduct the expense in the year you paid or incurred it. In some cases you may not be allowed to deduct the expense at all. Therefore, it is important to distinguish usual business expenses from expenses that include the following.

  • The expenses used to figure cost of goods sold.
  • Capital expenses.
  • Personal expenses.
Common business expenses that may be deductible for your business are:
  • Employee compensation
  • Rent Expense
  • Interest
  • Taxes
  • Insurance
  • Bad Debts
  • Depreciation
  • Amortization

 

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