Question

In your own words discuss ordinary, necessary and reasonable in relation to business expenses deduction

Answer 1

Basically in order to qualify as a deductible business operating expense,the expenditures made need to meet up few requirements. In order to qualify, the expense need to be ordinary and necessary ,directly related to business,an expense of the current period and of the reasonable amount.

Ordinary expenses: the costs incurred being common and the general industry standards accept them. But one must know that, an ordinary income also needs to be necessary to be deductible.

Necessary Expenses: the name itself says, necessary, are the costs that are required to make sure the day to day activities of the business are not being stopped and are running continuously.They are appropriate and helpful for the business to be run. They too need to be ordinary in nature to be tax deductible.

Reasonable Expense: Unless there are more practical and economical ways of achieving the same results, the expense is said to be reasonable expense. Reasonable means, the reason to believe it to be what it is. If the deductions seem to the IRS to be unreasonably huge, then they will not consider the portion that is considered unreasonable for deduction.

Costs that are incurred for sending out newsletters, house cards etc are few examples of reasonable,ordinary and necessary expenses of business.