Ordinary And Necessary Expenses - O & NE

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.

BREAKING DOWN '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.

RELATED TERMS
  1. Form 2106: Employee Business Expenses

    A tax form distributed by the Internal Revenue Service (IRS) ...
  2. Expense

    1. The economic costs that a business incurs through its operations ...
  3. Business Interest Expense

    The cost of interest that is charged on business loans used to ...
  4. Promotion Expense

    A cost that a business incurs to make its products or services ...
  5. Section 1244 Stock

    A type of equity named after the portion of the Internal Revenue ...
  6. Operating Expense

    A category of expenditure that a business incurs as a result ...
Related Articles
  1. Personal Finance

    Writing Off the Expenses of Starting Your Own Business

    Learn how to navigate the complicated rules for writing off the expenses of starting your own business. It could save you a lot of money.
  2. Retirement

    10 Tax Benefits For The Self-Employed

    Running your own business has both personal and financial perks.
  3. Markets

    What Is Section 1231 Property?

    Section 1231 property is depreciable business property that’s held for a year or longer.
  4. Personal Finance

    8 Tax Benefits For The Self-Employed

    Profitability in business depends on minimizing costs and maximizing resources. Here are several tax benefits that are available for the self-employed.
  5. Entrepreneurship & Small Business

    Top Tax Deductions For Brokers

    If you are paying out of pocket, you can make your business expenses work for you at tax time.
  6. Personal Finance

    Are Your Job Search Expenses Deductible?

    Looking for a job can be expensive. While some of the costs can be deducted, the IRS will not blindly sign off on them.
  7. Personal Finance

    How To Deduct Your Job Search Expenses

    With approximately 12 million Americans out of a job right now, many people are spending significant dollars to be noticed by potential employers. Fortunately, some of these job-search costs ...
  8. Financial Advisor

    Increase Your Tax Refund With Above-The-Line Deductions

    Find out about these deductions and how you can use them to lower your tax bill.
  9. Personal Finance

    End-of-the-Year Checklist to Save on Income Taxes

    From grouping related expenses to factoring in the alternative minimum tax, here are some things you need to keep in mind when doing tax planning.
  10. Personal Finance

    What's a Deductible?

    With insurance, a deductible is the amount of money the insured pays out-of-pocket before the insurance company pays for the loss.
RELATED FAQS
  1. What are the most common business deductions and expenses for small businesses?

    Learn about some of the most common business tax deductions available to small businesses that can reduce net business expenses. Read Answer >>
  2. Why are capital expenses (CAPEX) treated differently than current expenses?

    Learn the difference between capital expenditures, or CAPEX, and current expenses, and determine why they are treated differently ... Read Answer >>
  3. What are the most common operating expenses for an online business?

    Learn about the common expenses of online businesses and find out about some of the tax implications of new business expenses ... Read Answer >>
  4. Can you write variable costs off your taxes?

    Learn if you can deduct variable or fixed costs from your business taxes and learn more about business deductions, cost of ... Read Answer >>
  5. What is the difference between an operating expense and a capital expense?

    Learn the differences between an operating expense and a capital expense, and see how the two types of expenses are treated ... Read Answer >>
  6. How can I make sure I get all my eligible deductions?

    Most tax preparation software does a good job. However, like any recipe, the end results are only as good as what goes into ... Read Answer >>
Hot Definitions
  1. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  2. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  3. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  4. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  5. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  6. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
Trading Center