IRS Publication 535 - Business Expenses

A document published by the Internal Revenue Service (IRS) that provides guidance on what types of business expenses are and are not deductible. IRS Publication 535 covers the rules for deducting business expenses, and outlines the most common items taxpayers deduct.

In order to be deductible, a business expense must be considered both ordinary and necessary. "Ordinary" expenses are ones that are common in a particular industry, and "necessary" expenses are those that are helpful to conducting business. Cost of goods expenses, personal expenses and capital expenses are distinguished from business expenses, meaning that deducting costs from receipts in order to determine profits precludes those costs from also being deducted as a business expense. Capital expenses have to be capitalized rather than deducted.

The IRS publishes a number of documents that provide additional information on business expenses: Publication 334 (Tax Guide for Small Business), Publication 463 (Travel, Entertainment, Gift and Car Expenses), Publication 525 (Taxable and Nontaxable Income), Publication 529 (Miscellaneous Deductions) and Publication 587 (Business Use of Your Home).

Certain types of business expenses, such as capital expenses, are treated differently than ordinary and necessary expenses. These will likely require the taxpayer to use different tax forms. The accounting method employed by the taxpayer determines when expenses can be deducted.