Tax Questions Blog
What is a Reasonable Business Expense?
When a business owner needs to claim a business expense deduction, he has she needs to know what can be claimed in one cannot be. The business expenses must be “ordinary and necessary”.
Since there are so many types of business expenses, there is no clear-cut rule that will tell you what business expenses are allowed by the IRS and what not. There are general categories of business expenses that are tax deductible but many business owners find that they have business expenses that may not fall into those categories.
If the IRS ever disputes any business expense deductions, the courts usually rule with a business expense is ordinary and necessary for taxpayer using two separate points of view. The business expense must be reasonable for that tax payer claiming the deduction, not any other tax payers, at the time that the expense was made.
As long as there is a reasonable cause, then the business expense should be considered reasonable and therefore ordinary.
Document Your Business Expense Reasons
The reason behind why you are making a business decision to spend their money, and collect a business expense, matters a great deal. You should making a habit to write down the reasons behind all business expense decisions.
These may not get you off the hook if you in trouble with the IRS but it will serve as a proof that you truly believed at the time of making a business expense that it is a good decision for the business.
Tax Questions is a resource and information website only. We do not offer individual advice. For specific tax questions and answers, you are advised to consult your tax attorney.