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BUSINESS EXPENSES - OVERVIEW

Taxpayers are allowed to deduct all ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business. Code Section 162. Thus, to take business deductions, a taxpayer must be engaged in a trade or business (including the practice of a profession), and the expenses must be ordinary and necessary, In addition, the expenses generally must be reasonable in amount. Business expenses are deductible from gross income to determined adjusted gross income -- that is, they are deductible above the line. Code Section 62(a)(1). They are allowed even if they exceed gross income from the business, producing a net operating loss, as discussed in ch. 48. Reg. Section 1.162- 1.

COMPLIANCE TIP: Individual taxpayers who own and operate a business (sole proprietors) claim their business expenses on Form 1040, Schedule C, Profit and Loss From Business. Partnerships claim their business expense deductions on Form 1065, U.S. Partnership Return of
Income. S corporations claim business expense deductions on Form 1120S, U.S. Income Tax Return for an S Corporation. Corporations take their deductions on Form 1120, U.S. Corporation Income Tax Return.

Business expenses include the ordinary and necessary expenditures directly connected with or pertaining to the taxpayer's trade or business, except items which are used as the basis for a deduction or a credit under other provisions. Reg. Section 1.162-1(a). Thus, duplicate or double deductions are not permitted. Reg. Section 1.161-1. Amounts deducted under one provision of the Code cannot again be deducted under any other provision. Reg. Section 1.62-1T(b). Common business expenses include salaries,
travel expenses, rent, management expenses, commissions, supplies, incidental repairs, automobile operating expenses,
advertising and other selling expenses, and insurance premiums against fire, storm, theft, accident, or other similar losses. Reg. Section 1.162-1(a).

A taxpayer generally has the burden of proving that he is entitled to deduct the amount claimed on his tax return.

Business expenses that would otherwise be deductible cannot be deducted if they are specifically disallowed. In addition, business expenses cannot be deducted if they are capital expenditures -- expenditures to acquire or improve
property or for other purposes that will benefit the business beyond the taxable year in which the expenditure is made. Instead, these expenditures must be capitalized -- added to the basis of the property or to a capital account, and recovered through depreciation, amortization, or
when the property is disposed of.

COMPLIANCE TIP: Taxpayers paying business expenses of more than $600 to an individual or a pass-through entity may be required to issue a Form 1099. See Section 618.2(a).

IRS allowed expenses Page Don Fitch CPA CITP (877)CPA-Help or (877)272-4357 Website www.Paylesstax.com