Ordinary and Necessary Expense (O&NE)

Ordinary and necessary expenses (O&NE) are those that are common and accepted in the business you are operating. They are also those that are directly related to the business and are incurred while carrying on the business.

There are a few things to keep in mind when determining whether an expense is ordinary and necessary. First, the expense must be common and accepted in the business you are operating. This means that it is an expense that other businesses in your industry typically incur. Second, the expense must be directly related to the business. This means that it is an expense that is incurred in order to generate income from the business.

Some examples of ordinary and necessary expenses include:

• Cost of goods sold
• Rent
• Utilities
• Salaries and wages
• Advertising
• Marketing
• Travel
• Entertainment
• Legal and accounting fees
• Insurance

It is important to note that not all expenses are considered ordinary and necessary. Some expenses may be considered personal or capital in nature, and therefore not deductible. For example, personal expenses such as food, clothing, and entertainment are not deductible. Capital expenses, such as the purchase of a new car or equipment, are also not deductible.

If you are unsure whether an expense is ordinary and necessary, you should consult with your tax advisor.