Fundamental Payroll Certification (FPC) Practice Exam

Deductible business expenses are those costs that are necessary and ordinary for the operation of the business. This generally includes expenses directly tied to producing income, conducting business activities, or maintaining the business's operational functions. Examples include rent for office space, utilities, salaries paid to employees, supplies needed, and other related costs that help the business run smoothly and efficiently.

The focus on necessity and ordinary nature ensures that the IRS allows businesses to deduct these costs, helping to accurately reflect the net income of the business when tax time comes. This contrasts with personal expenditures, which do not qualify, as they are not directly tied to the business operations. Similarly, while gifts, entertainment expenses, and employee incentives can sometimes be deductible, they often have specific limitations and are not categorized as broadly deductible business expenses without other qualifying criteria.