- Jurisdiction
- United States — federal income tax only
- Tax year
- General principles; confirm rules for your filing year
Executive summary
This educational overview covers general principles for business expense deductions under U.S. federal income tax law, where Internal Revenue Code Section 162 allows deductions for ordinary and necessary expenses of carrying on a trade or business. It does not cover state, local or non-U.S. rules, and it does not state amounts or limits for any tax year.
Key findings
- 1Under U.S. federal law, a business expense generally must be both ordinary and necessary to be deductible (IRC §162).
- 2Some categories, such as meals, vehicles and home offices, have special limitations that change over time.
- 3Contemporaneous records are the foundation of any deduction.
Scope of this article
- Jurisdiction: United States, federal income tax only.
- Tax year: general principles only; no year-specific limits or amounts are stated. Always confirm rules for the tax year you are filing.
- Not covered: state and local taxes, payroll taxes, and the rules of any other country.
The general standard
The IRS describes an ordinary expense as one that is common and accepted in your industry, and a necessary expense as one that is helpful and appropriate for your business. Personal, living or family expenses are generally not deductible.
Areas with special rules
- Business meals and entertainment
- Vehicle use and depreciation
- Home office
- Travel
- Capital expenditures, which are generally recovered through depreciation rather than deducted immediately
Each of these has limitations that have changed across tax years.
Recordkeeping habits
- Keep receipts and invoices with the business purpose noted.
- Separate business and personal accounts.
- Log vehicle mileage contemporaneously.
- Retain records for the period required by the tax authority.
Investment considerations
Work with a licensed tax professional in your jurisdiction. Rules outside the U.S. federal system can differ fundamentally.
Risks and limitations
Tax law changes frequently. This article is educational and is not tax advice.
Methodology
Summary of general principles published by the U.S. Internal Revenue Service. No tax computation is performed.
Facts, assumptions, estimates and opinions
TIC labels the nature of each material claim so you can weigh it appropriately.
- Verified factIRC Section 162 permits deduction of ordinary and necessary business expenses, subject to other provisions of the Code.
- Verified factCapital expenditures are generally recovered through depreciation or amortisation.
- OpinionDisciplined recordkeeping is the highest-return tax habit for most small businesses.
Sources and references
- 01Guide to business expense resources — Internal Revenue Service
- 0226 U.S. Code § 162 — Trade or business expenses — Legal Information Institute, Cornell Law School
Downloads
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