business expense

Business expenses are the operating costs of a business. Whether a given cost qualifies as a business expense is relevant because business expenses are tax deductible while other forms of expenses are not. To qualify as a business expense, the cost must be ordinary, accepted and common in that business’ trade and necessary, appropriate, and useful in operating the business.

In cases where an expense is both inherently business related and personal, also known as a mixed expense, the court will weigh the underlying reasons the expense was occurred against each other in determining whether it is primarily business or personal. 

Additionally, certain mixed expenses allow for partial deductions. For example, in Reems v. Commissioner the petitioner was allowed to deduct 80% of his costs incurred through use of his automobile because the automobile was used for business purposes 80% of the time. 

[Last updated in June of 2022 by the Wex Definitions Team]