Welcome Guest. Register Now!  

LinkBack Thread Tools Search this Thread Display Modes
  #1 (permalink)  
Old 09-28-2012, 04:19 PM
TaxGuru's Avatar
Tax Guru
Join Date: Jan 2007
Location: New Jersey, USA
Posts: 2,400
Blog Entries: 3
What are deductible business expenses according to the IRS?

The IRS code section 162 defines deductible business expenses "as those expenses which are ordinary and necessary and are incurred or paid during the taxable year in carrying on any trade or business. According to the IRS,

1. An “ordinary” expense is one that is common and accepted in the industry.
2. A “necessary” expense is one that is helpful and appropriate for the trade
or business.
3. The expense does not have to be indispensable in order for it to pass the ordinary or necessary test.

Furthermore, the IRS has stated that "an expense incurred prior to the establishment of a trade or business is not deductible under IRC Sec. 162. Instead they may either be non-deductible personal expenses or capitalizable costs."

The IRS has also stated that the it is important to differentiate business expenses from other expenses, such as the following expenses shown below;

1. Expenses used in calculating Cost of goods sold (COGS). COGS include the cost of products or raw materials including freight, storage, direct labor for workers who produce products, and factory overhead.

2. Capital expenses must be capitalized and either depreciated or amortized over an asset’s useful life.

3. Personal expenses are not deductible. Unfortunately some clients believe that any payments from a business account regardless of purpose are business expenses.

Find a CPA near you!

Ask TaxGuru Please refer to the legal disclaimer.

Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote

Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off

Similar Threads
Thread Thread Starter Forum Replies Last Post
Can I claim temporary living expenses as business expenses for a 3 month paid fellowship/internship? thunder Itemized Deductions 5 11-15-2011 11:53 PM
Full Deductible Expenses not directly related to the main focus of a Business nittanyice Sole-Proprietorship 1 02-08-2009 02:37 PM
What would be deductible business expenses for my new retail business? frankietan Sole-Proprietorship 0 05-05-2008 07:30 PM
What is deductible as a Employee Business expenses? jonny Miscellaneous 0 02-11-2007 11:27 PM
Office at Home Expenses-What is deductible? BebopVT Sole-Proprietorship 0 01-19-2007 07:46 AM

Follow us on Facebook Follow us on Twitter Google Buzz Rss Feeds

» Categories
 » Income
 » IRA/Sep
 » Medical
 » Payroll
Forum for CPAs
Financial Planning