What Are Ordinary and Necessary Expenses?

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Ordinary and necessary expenses are business costs you can deduct from your revenue when determining your taxable income.

Key Takeaways

  • Ordinary and necessary expenses meet the criteria of being something that a business has a legitimate reason for incurring.
  • Some types of purchases may be ordinary and necessary for one business but not for another, depending on several factors.
  • Individuals who have business income, such as freelancers and gig workers, can reduce their taxable income by claiming ordinary and necessary expenses.

How Ordinary and Necessary Expenses Work

As the name implies, ordinary and necessary expenses are the typical expenses you'd expect a business to pay for; generally, you can deduct these expenses for tax purposes. 

The IRS notes that ordinary expenses are “common and accepted in your industry,” while necessary expenses are those that are “helpful and appropriate for your trade or business.”

However, some types of common expenses, like those that factor into the cost of goods sold, are not considered ordinary and necessary and fall into different categories. And while many types of business expenses can be ordinary and necessary, the specifics can vary greatly among businesses.

“It's all relative," CPA Michele Cagan told The Balance by phone. "What’s ordinary and necessary for one business is not necessarily ordinary and necessary for another,”

For example, Cagan noted that some business owners want to deduct dog food as an ordinary and necessary expense because they work from home with their pet or bring their dog to their office. But, generally, dog food would not be deductible, because it’s something that would be purchased personally, with or without the business existing.

That said, dog food might be deductible as an ordinary and necessary business expense for some pet-oriented businesses, she said, like a veterinarian who supplies treats for patients.

To be ordinary and necessary, “there has to be an obvious tie toward this expense trying to create income,” Cagan said.

Keep in mind that an ordinary and necessary business expense does not have to successfully generate revenue, as long as there was reasonable intent to do so, she said, such as in the case of a marketing campaign that flops. 

Reporting Ordinary and Necessary Expenses on Schedule C

If you're an individual business owner, such as a sole proprietor—freelancers and gig workers, for example—you can typically claim ordinary and necessary business expenses on Schedule C.

On this form, you can report how much you've spent within various categories, ranging from legal and professional services to deductible travel and meals. These expenses then offset the amount of revenue your business earned, which reduces your taxable income. However, the reductions aren’t always equal to the full purchase cost.

For example, only 50% of the cost of business meals can generally be deducted. Plus, not all meals necessarily count as ordinary and necessary expenses. You can’t automatically deduct the cost of your daily lunch, for instance, just because you ate it at your desk, Cagan said. 

“Business meals have to have a business purpose…such as by meeting with a customer…where you're furthering business [while] you're having a meal,” she said.


Some ordinary and business expenses might also be prorated based on the mix of professional versus personal usage, such as if you deduct the proportion of a phone bill used for work, rather than the full cost.

Also keep in mind that IRS forms might not specify whether something is an ordinary and necessary expense, but that doesn’t mean a business owner can’t claim the deduction, as long as they can justify it.

"Just because something isn’t a line item on a tax form doesn’t mean you shouldn’t take it,” Cagan said.

Types of Ordinary and Necessary Expenses

Even though the meaning of "ordinary and necessary" changes depending on the type of business you have, there are some general categories of expenses that usually qualify:

  • Supplies for your office
  • Rent you pay for your office or for a warehouse
  • Gas, electric, and water bills you pay for your office
  • Repairs and upkeep of business equipment
  • Uniforms for employees
  • Courses required for professional certification
  • Business-related insurance
  • Retirement plans for employees
  • Advertising

What Ordinary and Necessary Expenses Mean for Individuals

While ordinary and necessary expenses apply to business expenses, you may still want to understand this area if they have any income outside of their main employment. If you freelance, have a side hustle, or you’re thinking of starting your own business, it can be useful to know what’s tax-deductible.

Because ordinary and necessary expenses can be somewhat subjective, however, you may want to consult with a tax professional who can help you decide whether something should be claimed. Doing so can help you deduct ordinary and business expenses you may not have realized are eligible, and it can also help you avoid claiming expenses that you aren't allowed to. 

Frequently Asked Questions (FAQs)

What are necessary expenses?

IRS guidelines say that a necessary expense is one that is helpful and appropriate for your business. If you run an accounting business from home and have a pet, buying dog food would likely be a personal expense instead of a business expense because it is not helpful or appropriate for an accounting firm.

What is considered an ordinary and necessary transportation expense?

Travel expenses can be a complex issue. However, generally speaking, ordinary and necessary transportation costs would include things like travel expenses for a convention that provides a benefit to your business; some costs related to temporary work assignments outside your tax home; and lodging, taxi or ridesharing fares, non-entertainment meals, and plane tickets related to a business trip.

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  1. IRS. “Publication 535 (2021), Business Expenses.”

  2. IRS. “2021 Instructions for Schedule C,” Page C-8. Accessed Feb. 9, 2022.

  3. IRS. "Topic No. 511 Business Travel Expenses."

  4. Richard A. Hall, PC. "Deducting Ordinary and Necessary Business Expenses."

  5. Staples. "25 Common Business Deductions and Expenses."

  6. Iowa State University Center for Agricultural Law and Taxation. "Deducting Farm Expenses: An Overview."

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