Ordinary and Necessary Business Expenses

All businesses can deduct ordinary and necessary business expenses from their tax return. But be careful — it’s not black and white.

ONE SIZE DOESN’T FIT ALL

Deductible business expenses aren’t uniform. An ordinary business expense for a dog walking business certainly wouldn’t be ordinary for a bakery.

Think of it like this. What expenses are unequivocally needed to run your business? A dog walker needs dog treats and leashes. But a bakery doesn’t.

BEWARE OF THE GRAY AREA

Several types of expenses tend to occupy the gray areas. These include business meals, automobile expenses, travel, and capital expenditures. Without clear-cut rules, don’t blur the lines between what’s deductible and what’s not. A lunch with a customer is a business expense. But lunch with your spouse or child likely isn’t. Travel to an industry conference is an ordinary expense. However, a trip to the Maldives, where you spend a few hours planning your company’s future, doesn’t count.