Finance Forward Blog

Every small business owner has heard it before: “If you buy it for your business, it’s a write-off!”

It sounds great, but here’s the truth: just because you spend money in the name of your business doesn’t mean it automatically qualifies as a tax deduction. The IRS has two simple tests that every deductible expense must pass: it must be both ordinary and necessary.

Let’s break down what that really means, with some examples that bring the rules to life.

What Does “Ordinary” Mean?

An ordinary expense is something that’s common and accepted in your line of work. If most businesses in your industry regularly spend money on it, chances are it’s ordinary.

Examples of ordinary expenses:

• A coffee shop buying espresso cups and beans

• A graphic designer paying for design software

• A landscaper purchasing fertilizer

These are the kinds of purchases everyone expects in those industries.

What Does “Necessary” Mean?

A necessary expense is something that’s helpful and appropriate for your trade or business. It doesn’t have to be indispensable, but it should clearly support your ability to operate.

Examples of necessary expenses:

• Camera equipment for a photographer

• Payroll software for a small business with employees

• Shipping supplies for an e-commerce shop

Even if you could technically run your business without them, they’re reasonable and relevant to your work.

The Golden Rule: An Expense Must Be Both

For a deduction to stick, the expense has to check both boxes: ordinary and necessary. Let’s look at how this plays out:

✅ Ordinary + Necessary

• A hair salon buying scissors, hair dye, and shampoo

• A restaurant purchasing ovens and refrigerators

⚠️ Ordinary but NOT Necessary

• A high-end sound system for the office (music is common, but premium equipment isn’t essential to daily operations)

• Expensive artwork for a non-client-facing area (décor is normal, but luxury art doesn’t serve a business function)

⚠️ Necessary but NOT Ordinary

• Helicopter transport to remote worksites (helpful in rare cases, but far from industry standard)

• A landscaper buying a luxury yacht for “client meetings” (definitely not ordinary!)

Don’t Forget Documentation

Even when an expense passes both tests, you still need to back it up. The IRS expects proper documentation to prove your deduction is valid. Keep:

• Receipts or invoices

• Bank or credit card records

• Notes showing how the expense supports your business
  

Good recordkeeping doesn’t just protect you in case of an audit—it also makes tax time less stressful.

The Bottom Line

Write-offs can save your business real money, but only if they follow the rules. Always ask yourself:

• Is this ordinary in my industry?

• Is this necessary for my work?
  

If the answer is yes to both, you’re probably safe to deduct it. And if you’re unsure, we like to ask clients if they would be comfortable defending a decision to the IRS. That’s often a great barometer of whether to write it off or eat the expense.

At J. Hall & Company, we help small business owners stay compliant and uncover deductions they might be missing, so you keep more of what you earn. Need an accounting partner who gets small business? Reach out here to get started.