J.K. Lasser's Small Business Taxes 2013: Your Complete Guide to a Better Bottom Line

Other Business Expenses in General

You generally can deduct any business expense if it is considered ordinary and necessary. It need not fit neatly into a specific category as long as it meets 3 tests:

1. The expense must be related to the business you carry on (be it employment or a business you own).

2. The expense cannot be a capital expenditure. Capital expenditures are costs related to the acquisition of a capital asset. For example, you cannot deduct the cost of improvements to property. These costs are capital in nature. However, some capital expenditures can be recovered through deductions for depreciation or amortization (see Chapter 14).

3. The expense must be ordinary and necessary.

Ordinary

Common and accepted in your business.

Necessary

Helpful or appropriate to your business. To be necessary, an expense need not be indispensable. For example, if you send flowers to your employee in the hospital, you may deduct the cost of the flowers.

Another requirement that applies to all deductions is that the expenses must be reasonable in amount. What is reasonable is a question of fact based on the particular situation. Checklists of various miscellaneous deductions related to your business status can be found toward the end of this chapter.