What qualifies as a business expense?

A business expense is defined as an expense that is necessary and ordinary for the operation of a business and for the generation of income. This encompasses costs directly related to the activities of running a business, such as rent for office space, supplies, wages for employees, and utilities. For an expense to qualify as a business expense, it must be both ordinary—common and accepted in the business field—and necessary—helpful and appropriate for generating income.

While personal expenses incurred while working and costs associated with personal investments may have some relation to business activities, they do not meet the criteria of being necessary for the operation and production of income in a business setting. Furthermore, not all expenses can be deducted from income; only those that are confirmed as business-related meet the criteria for deduction under tax law. Therefore, the definition provided in the second option accurately reflects the characteristics of a legitimate business expense, confirming its correctness.