Your Ultimate Guide to Tax-Deductible Expenses

Jul 26, 2021

Your Ultimate Guide to Tax-Deductible Expenses

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It seems that just about everyone has an opinion on business deductions. Whether it’s a colleague telling you to deduct the cost of your monthly Netflix payment or your brother-in-law boasting that he deducted the money he paid for his latest tattoo, opinions run the gamut.

Should you follow the example of the serial deductors around you? Absolutely not. The main problem with the above examples is that it won’t be your colleague or brother-in-law reviewing your tax filing next year. That duty will fall upon the Internal Revenue Service (IRS). And they don’t view tax law nearly as creatively as others. In fact, it’s safe to say that they’re some of the most literal people on the planet.

Before we go any further, let’s see what the IRS has to say about deductions.

“To be deductible, a business expense must be both ordinary and necessary,” insists IRS.gov. “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 separate business expenses from the following expenses: The expenses used to figure the cost of goods sold, Capital Expenses, and Personal Expenses.”

Perhaps you’re still wondering what makes an expense “ordinary” and “necessary.” To get a better idea, let’s dive deeper into the definition of deductions.

About the Author

Grant Olsen

Grant Olsen

Grant Olsen is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV, where his articles have generated more than 6 million page views, and has been featured on FitSmallBusiness.com and ModernHealthcare.com. Grant is also the author of the book "Rhino Trouble." He has a B.A. in English from Brigham Young University.

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