We'll be covering specific expenses such as depreciation, meals and entertainment and auto/travel expenses in future issues of the newsletter.
Here are general guidelines as to the deductibility of an expense. The expense has to be part of the cost of carrying on a trade or business and the business is operated with the goal of making a profit. The expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your business. For example, limo service may be an ordinary expense to a literary agent but not to a plumber. A necessary expense is one that is helpful and appropriate to your business, but need not be indispensable. For a riding school, a bridle for each school horse would be an example of a necessary expense.
When deciding whether an expense is both ordinary and necessary, examine industry guidelines, speak with others in your field and check related literature. But keep in mind that the IRS tends to be conservative in its interpretation of this topic.
For more information, visit the IRS website.