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LSDefine
Simple English definitions for legal terms
ordinary and necessary expense
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A quick definition of ordinary and necessary expense:
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.
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
- 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.