CandleFocus

Ordinary and Necessary Expense (O&NE)

Candlefocus Editor

Ordinary and Necessary Expenses (O&NE) are expenses required for the continued operation of a business. These expenses can include the costs of running the business itself, such as advertising, materials, equipment, and more, as well as items used to maintain the business's ability to keep running, like insurance, professional services, and office supplies. An ordinary and necessary expense is not extravagant and must be something that is beneficial to the business in order to qualify for a tax deduction.

One major factor used to determine if an expense is ordinary and necessary is how common is that type of expense for businesses in the same industry as your own. If the expense is commonplace for that industry, it's likely to be considered an ordinary and necessary expense.

Software and hardware are an essential expenditure for most businesses. Business software such as accounting programs, inventory tracking tools, customer relationship management (CRM) software, and the like can be considered ordinary and necessary expenses. Some hardware may also be considered ordinary and necessary if it's necessary for the continued operations of the business. For example, if a business needs a computer or printer to operate, these could be deemed ordinary and necessary expenses.

Office furnishings, workspace needs, and other items used to maintain an environment conducive to work are necessary expenses. Fixtures, supplies, and any furniture used in the operation of the business may also be considered ordinary and necessary expenses.

Depreciation may also be considered an ordinary and necessary expense. This may include the depreciation of the building or office itself, as well as depreciation of business equipment and technology.

Owners of home-based businesses may be able to deduct a portion of their rent/mortgage and utilities. This may be done to reflect the area of their home that is used regularly for business purposes.

An ordinary and necessary expense is one that is a typical expenditure for a particular business within an industry. It must be beneficial to the business and necessary for its continual operations. If the expense meets these criteria, then they may be considered an ordinary and necessary expense, and therefore tax-deductible.

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