The Ordinary-and-Necessary Standard and Common Deductions
Business expenses are deductible when they are "ordinary and necessary" in the context of the business — a standard established in Section 162. "Ordinary" means common and accepted in the taxpayer's trade or business; "necessary" means helpful and appropriate, not indispensable. The IRS disallows deductions that are personal in nature, lavish or extravagant, or without a genuine business connection — but the standard is broadly interpreted and covers the vast range of legitimate business costs.
Home office deductions require a portion of the home used "regularly and exclusively" for business. The "exclusive use" requirement is strictly interpreted: a home office used for anything personal — including occasional family use of the space — does not qualify. The deduction can be calculated using the regular method (actual home expenses allocated by the home office percentage of total home area) or the simplified method ($5/square foot, up to 300 square feet). Home office deductions are subject to the gross income limitation: they cannot create a net loss from the business activity (though expenses in excess of the limit carry forward).
Vehicle deductions can be calculated using actual expenses (gas, insurance, maintenance, depreciation allocated by business use percentage) or the standard mileage rate (67 cents per mile for 2024). The standard mileage method is simpler; actual expenses are often larger for high-cost vehicles. Both methods require contemporaneous mileage logs — date, destination, business purpose, miles driven — and the IRS scrutinizes vehicle deductions closely. Commuting miles (home to regular business location) are never deductible regardless of method. Meals have been 50% deductible for genuine business meals since the TCJA eliminated the entertainment deduction; substantiation requirements include the business purpose, attendees, and date of each meal.