To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business.

Capital Expenses

You must capitalize, rather than deduct, some costs. These costs are a part of your investment in your business and are called “capital expenses.” Capital expenses are considered assets in your business. There are, in general, three types of costs you capitalize.

• Business start-up costs (over 60 months)
• Business assets.
• Improvements.

Capital versus Deductible Expenses

You usually capitalize the cost of a motor vehicle you use in your business. You can recover its cost through annual deductions for depreciation.

Generally, repairs you make to your business vehicle are currently deductible. However, amounts you pay to recondition and overhaul a business vehicle are capital expenses and are recovered through depreciation.

Travel Expenses You Can Deduct

You can deduct ordinary and necessary expenses you have when you travel away from home on business. The type of expense you can deduct depends on the facts and your circumstances.You should keep a log, diary, notebook, or any other written record to keep track of your expenses.

These expenses can include:

• Travel by airplane, train, bus, car, taxi, commuter bus and airport limousine
• sending baggage, samples or display material

What Entertainment Expenses Are Deductible?

Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation.

Entertainment also may include meeting personal, living, or family needs of individuals, such as providing meals, a hotel suite, or a car to customers or their families.

Entertainment includes the cost of a meal you provide to a customer or client, whether the meal is a part of other entertainment or by itself. A meal expense includes the cost of food, beverages, taxes, and tips for the meal.

Generally, you can deduct 50% of your Meals and Entertainment Expenses.