What is an Ordinary and necessary expense?
An ordinary and necessary expense is an IRS standard requiring business deductions to meet two criteria for tax deductibility. Ordinary means the expense is common and accepted in the taxpayer's trade or business, reflecting standard industry practices and typical operational costs. Necessary means the expense is helpful and appropriate for conducting business, though not necessarily indispensable or mandatory. Together, these requirements ensure deductions relate to legitimate business operations rather than personal expenses. Courts and IRS guidance evaluate expenses using industry standards, business purpose, and reasonableness, depending on the specific circumstances. Home office expenses, Meals deductions, and Travel expenses must all satisfy ordinary and requirements to qualify for business deduction treatment under Section 162 regulations.
.png){kind=small}