Ordinary and Necessary Expense

Definition

An ordinary and necessary expense is one of the most cited deduction standards in U.S. federal tax law. The phrase matters because 'ordinary' and 'necessary' are legal tests, not casual labels taxpayers can attach to any business-looking payment.

Examples

• A cost can feel useful to the owner and still fail the Section 162 standard in context.
• Deduction disputes often focus on whether the expense belongs to the taxpayer's own trade or business.