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Legal Definitions - ordinary and necessary expense

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Definition of ordinary and necessary expense

Definition: An expense that is normal or usual and helpful or appropriate for the operation of a particular trade or business and that is paid or incurred during the taxable year.

Examples:

  • Office supplies
  • Advertising costs
  • Employee salaries and benefits
  • Rent for business property
  • Travel expenses for business purposes

These examples illustrate the definition because they are expenses that are common and necessary for running a business. They are considered tax-deductible because they are essential for the operation of the business.

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Simple Definition

An ordinary and necessary expense is money spent to achieve a specific result, especially in business. It is a cost that is normal, helpful, and appropriate for the operation of a particular trade or business and is paid or incurred during the taxable year. Examples of ordinary and necessary expenses include rent, utilities, salaries, and supplies. These expenses are tax-deductible, meaning they can be subtracted from a business's income to reduce the amount of taxes owed.

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