Business owners can generally deduct on their tax returns the ordinary and necessary costs they incur. But they must be able to prove they’re engaged in legitimate businesses to make a profit. In one case, the U.S. Tax Court ruled a taxpayer wasn’t entitled to deduct business expenses associated with writing because she wasn’t engaged in the activity for profit. She didn’t keep formal records and didn’t have a business plan. She also claimed deductions for personal expenses including vacations, clothing, food, home improvements and personal vehicle costs. For the three years in question, she reported $1,045 in gross receipts and claimed $187,012 in expenses. (TC Memo 2024-75)
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