IRC §162 · 26 U.S.C. §162
IRC §162: Trade or Business Expenses
IRC §162 allows a deduction for all ordinary and necessary expenses paid or incurred in carrying on a trade or business. Ordinary means common in your field; necessary means helpful, not indispensable. Personal expenses are never deductible here — the business/personal line is where examinations live.
What it governs
- Must be carrying on — pre-opening costs fall under §195, not here
- Ordinary (common in the field) and necessary (helpful to the business)
- Reasonable in amount — especially compensation
- Never personal: §262 draws the hard boundary
In the GuideFull treatment in Chapter 3 of the Guide — THE TAX CUTTERY® Guide to Federal Income Taxation, Professional Edition (564 pages, 24 chapters).
From the practiceDeductions under examination →
Questions this section answers
- Can I deduct startup costs under §162?
- Not immediately — pre-opening costs fall under §195 amortization once the business begins. §162 covers carrying on, not starting up.
- What makes an expense 'necessary'?
- Helpful and appropriate for the business — the Supreme Court set the bar at helpful, not essential. Ordinary, common in the field, does the heavier lifting.
- Why do meals and travel get extra scrutiny?
- Because §162 allows them but §274 demands strict substantiation — the deduction exists, then the records rule bites.
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