Question

Business expenses are the cost of carrying on a trade or business. These expenses are usually deductible if the business operates to make a profit.

Section 162(a) of the Internal Revenue Code defines business expenses as the ordinary, necessary, and reasonable expenses of carrying on a trade or business. The term "necessary" for tax purposes has a wider definition than that found in common usage today. The expense does not have to be "absolutely necessary" in the sense that it is "indispensable" to carrying on the business. It only needs to be helpful to one's business as well as appropriate for one's business. For instance, leasing an office space is certainly helpful to the practice of a CPA, providing a place for the CPA to meet with clients. However, it is not absolutely necessary for a CPA to conduct his trade, since many sole-proprietor CPAs work out of their home or provide their services at their clients' places of business.

Provide examples of business expense that meet the criterion.  

Answer 1

The necessary term in section 162(a) means the expenditure in connection with business which are helpful for the business development. Examples of such business expenses are as follows,

1) Expense on the repairing and maintenance of vehicle/property/furniture, which are use for the business purpose,

2) Premium on general insurance of the property,

3) Advertisement expenses

4) Travelling expenses wholly for business purpose

5) Rent/Lease expense incurred for Property/Machinery

6) Purchase of Raw material

7) Consultancy expense for the business

8) Interest paid on borrowing

9) Salary and other emoluments paid to Employees/Professionals as per allowable under Act

10) Utility Expenses

11) Legal Fees

12) Office Expenses

Hence there are wider list of examples of such expenses and section is given such criteria and above expenses are incurred solely for the business purpose than the same is meet such criteria.