Hey Abe! What counts as a deduction for my business?
Abe: The guidelines to remember with business expenses are that they must be ordinary and necessary. From the IRS website, IRS.gov, ordinary and necessary expenses are broken down thusly:
“An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.”
It is important to note that the IRS does not provide a list of deductible expenses for any line of work. The ordinary and necessary criteria are the only criteria provided to us by the IRS. However, this does not have to put a stranglehold as to what can or cannot be deducted.
For example, examining common industry deductions such as a lease payment, fuel, or equipment, these are easily justifiable. Lease payment is ordinary for either land, a building, or equipment in many lines of work and it is especially necessary for independent contractors because if they do not make the payment, they do not have their commercial vehicle to do their business.
Using the same line of thinking with fuel, it is arguably the most ordinary and necessary purchase in the transportation industry. Fuel is both ordinary and necessary because your truck literally cannot operate without it.
So the next time you are struggling to determine if you should be deducting an expense, ask yourself how you would justify it as ordinary and necessary.
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