Your business may also generate expenses that tie into the cost of goods sold if you manufacture a product or if you have capital expenses for fixed assets you purchased. An expense does not have to be indispensable to be considered necessary. A necessary expense is defined as an expense that is “helpful and appropriate” for your trade or business. An ordinary expense is defined as an expense that is “common and accepted” in your trade or business. The IRS allows a business expense deduction if the expense is both ordinary and necessary. The chart also shows how the Internal Revenue Service (IRS) and FTB treat each type of expense. The attached comparison chart details some common business expenses that may be deductible for income tax purposes. The Franchise Tax Board (FTB) generally follows federal law on many common business expenses. Business expenses are the costs of carrying on a trade or business, and they are usually deductible if the business is operated to make a profit. In addition, deducting business expenses can potentially lower the overall tax liability of your business. Whether you are forming a new business or you are a current business owner, claiming all the expenses you are entitled to makes smart business sense. Business expense deductions allowed to be taken by other business entities may be subject to different rules. Although there are many forms of business ownership that have business expenses, this publication focuses on sole proprietorships. Use this publication together with the federal publications we reference here. We detail the most common business expenses in this publication. Common Business Expenses for the Business Owner and Highlights of the Federal/State Differences
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