Business Deduction Basics

To qualify as a business deduction, “an item must (1) be ‘paid or incurred during the taxable year,’ (2) be for ‘carrying on any trade or business,’(3) be an ‘expense,’ (4) be a ‘necessary’ expense, and (5) be an ‘ordinary’ expense.” An ordinary expense is “of common or frequent occurrence in the type of business involved A necessary expense is appropriate and helpful in carrying on the trade or business however, no portion of the cost of operating an automobile that is attributable to personal use is deductible. Similarly, ordinary commuting expenses are not deductible.