Legal Definitions - business expense

A business expense is a cost incurred by a business in order to operate. These expenses are tax deductible, meaning they can be subtracted from the business's taxable income. To qualify as a business expense, the cost must be:

• Ordinary, accepted, and common in the business's trade
• Necessary, appropriate, and useful in operating the business

For example, a restaurant may deduct the cost of food and supplies used to prepare meals, while a law firm may deduct the cost of legal research materials.

In some cases, an expense may be both business-related and personal, such as a cell phone used for both business and personal calls. In these cases, the court will determine whether the expense is primarily business or personal. For example, if a self-employed individual uses their personal vehicle for business purposes 80% of the time, they may deduct 80% of the vehicle's expenses as a business expense.

Overall, business expenses are important for businesses to track and deduct in order to reduce their taxable income and increase their profits.