Business owners can generally deduct ordinary and necessary expenses paid or incurred during the taxable year, provided they can substantiate them. In one case, the U.S. Tax Court denied depreciation deductions claimed by an engineering firm owner for the value of his own time spent developing a program. Self-performed labor isn’t “paid or incurred,” the court stated, and therefore, not deductible. The court disallowed other deductions due to insufficient records and lack of a clear business purpose. An accuracy-related penalty was also imposed, with the court noting the taxpayer improperly reduced gross receipts by claiming unsubstantiated customer discounts. (TC Memo 2025-27)
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