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As a business owner, you need to do everything you can to maximize your profits and ensure the success of the company. In most cases, one of your biggest expenses is going to be the various taxes that your business has to pay. Finding and taking advantage of every tax deduction possible will help to reduce your overall tax burden so you can spend your money on more productive things. One of the biggest deductions for most organizations is for “ordinary and necessary business expenses.” Read through this blog post to learn about this concept.
What Are Ordinary and Necessary Expenses?
In order for a business expense to be deducted, it has to be considered both ordinary and necessary for the running of the organization. This rule is found in Section 162 of the Tax Code. Interestingly, that tax section does not define what exactly is meant by either “ordinary” or “necessary,” which can make it a challenge for business owners to understand what can and cannot be deducted.
This standard has been in place for quite some time, so there is a lot of precedent that accountants, tax attorneys, and business owners can look at to determine what is and is not ordinary and necessary. Some examples of qualifying expenses include:
- Office Supplies – Things like paper, pens, computers, printers, networking equipment, desks, chairs, filing cabinets, and other standard office supplies are all considered ordinary and necessary.
- Physical Space – When a business has to rent shop space, offices, and other buildings it is understood that these are required for serving customers.
- Travel – Some travel expenses can be considered ordinary and necessary, but there is a line that can’t be crossed. For example, a small business typically can’t lease a private jet for travel and get away with deducting the expense. They could, however, deduct the cost of business class commercial airfare.
Will It Qualify?
While many expenses are obviously going to be approved, most companies will try to push the envelope to see what they can push through without the IRS having a problem with it. Even if you may slip something like this through once in a while, it can come back to bite you if the IRS ever performs an audit on prior returns. The attorneys at Weisberg Kainen Mark are here to help you if that audit ever comes to pass. We will guide you through the audit process, including how to prove that your business deductions were “ordinary and necessary” and therefore should be deductible.
Working with Professionals
Whenever you deal with any tax decision, you want to make sure you have a professional there to help you along the way. Please contact us to discuss your options and get the help you need.
Weisberg Kainen Mark, PL
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