S2 Ep 2 BOSS Tax Tip “Ordinary & Necessary”
S2 Ep 2 BOSS Term Of The Week Write Off
“Ordinary & Necessary” – Section 162 of the Internal Revenue Code (IRC) discusses guidelines for business expenses. The IRC allows businesses to report any expense that may be ordinary and necessary. 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. Generally, ordinary means that the expense is common in the industry and most business owners in the same line of business or trade would potentially expense these things. Necessary means that the expenses help in doing business, are appropriate, and a business owner might not be able to handle the business if s/he did not make the expenditure.
An expense that meets the definition of ordinary and necessary for business purposes is expensable and therefore tax deductible. Some business expenses may be fully deductible while others are only partially deductible.3 Below are some examples of allowable, fully deductible expenses:
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