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Simple English definitions for legal terms
ordinary and necessary business expense
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A quick definition of ordinary and necessary business expense:
An ordinary and necessary business expense is money spent by a business to operate and promote itself. This can include things like rent, salaries, and advertising costs. These expenses are tax-deductible, meaning the business can subtract them from their income when calculating how much they owe in taxes. It's important for businesses to keep track of their expenses and make sure they are necessary and reasonable for the operation of the business.
A more thorough explanation:
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
- Travel expenses for business trips
These examples illustrate how ordinary and necessary business expenses are expenses that are common and necessary for running a business. They are expenses that are directly related to the operation of the business and are incurred during the taxable year. These expenses are tax-deductible, which means that they can be subtracted from the business's taxable income, reducing the amount of taxes owed.