Business owners can generally deduct the ordinary and necessary expenses of operations. Tax law defines an expense as “ordinary” if the transaction is common for the type of business and “necessary” if it’s helpful in conducting the business. Courts also look at the primary motive for incurring costs. In one case, an attorney argued that he could deduct over $303,000 he spent on car racing as advertising for his law firm because the firm sponsored the car. The IRS disallowed the costs as not ordinary and necessary for a law firm. The U.S. Tax Court agreed, stating that the taxpayer’s primary motive for incurring racing expenses wasn’t to promote his law firm. (TC Memo 2023-18)
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