Ordinary And Necessary Expenses - O & NE

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DEFINITION of 'Ordinary And Necessary Expenses - O & NE'

Expenses incurred by individuals for their business or primary employment. "Ordinary and necessary" expenses are categorized as such for income tax purposes, and these expenses are generally considered tax deductible in the year they are incurred.

These expenses are outlined in Section 162(a) of the Internal Revenue Code and must pass basic tests of relevance to business, as well as necessity.

INVESTOPEDIA EXPLAINS 'Ordinary And Necessary Expenses - O & NE'

This section of the tax code is the source of a large number of deductions by individuals, especially in years of transition between jobs or careers. Typical expenses that can be included in the "ordinary and necessary" group include a uniform for work or business software purchased for a home computer.

Startup costs associated with setting up a new business may also be tax deductible, but typically must be spread out over several years; these costs do not qualify as ordinary and necessary for IRS purposes.

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