What is an ordinary and necessary business expense?

The costs of operating your business are generally referred to as business expenses. To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be absolutely essential to be considered necessary.

In general, you should be prepared to show the IRS documentation of any expense you deduct and be prepared to explain why the expense is both ordinary and necessary.

Examples of expenses that DON'T qualify as ordinary and necessary include:

• Expenses of commuting to and from a regular workplace
• Federal income tax payments
• Country club or other similar membership dues
• Lobbying expenses or political contributions
• Penalties and fines paid after breaking a law
• Clothing, unless it's required to be worn for your business and can't be worn for everyday wear
• Personal, living, and family expenses