Business owners can generally deduct the ordinary and necessary costs to conduct business. However, the burden to prove the deductions are legitimate is on the taxpayer. In one case, the U.S. Tax Court ruled that a physician who owned a film company wasn’t entitled to deduct expenses associated with the business because he didn’t “engage in those activities for profit.” In fact, the court considered nine separate factors to determine if the requisite profit objective was met. All nine factors weighed against the taxpayer. Also, the taxpayer wasn’t entitled to deduct purported business expenses associated with his medical practice because of a lack of substantiation. (TC Memo 2023-63)
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