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Page 49 of 63 |
What are business expenses? |
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The IRC allows a deduction for "ordinary and necessary" expenses of a trade or business. It goes on to give examples, such as reasonable compensation for services actually rendered, traveling expenses away from home in pursuit of a trade or business, and rent for business property.
There are many other types of expenses, but the key is whether the expenses are both "ordinary", in the sense of typical or customary, and "necessary" in the sense of appropriate. There are no complete definitions of what is "ordinary and necessary". A deductible expense must meet both tests.
Similarly, what compensation is "reasonable" has been the subject of much litigation and is essentially a factual inquiry.
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