What must be true for business expenses to qualify as tax deductions according to Section 162 of the Internal Revenue Code?

For business expenses to qualify as tax deductions under Section 162 of the Internal Revenue Code, they must be both ordinary and necessary. This means the expenses are common and accepted in the industry in which the business operates, and they are helpful and appropriate for the business.

Ordinary expenses are those that are typical and commonly incurred in the business's area of operation. Necessary expenses are those that are helpful and appropriate for the business’s activities, although not necessarily indispensable. For example, renting office space or purchasing supplies would be classified as ordinary and necessary expenses. This criterion ensures that only legitimate costs directly related to the operation of the business are deducted, which helps maintain the integrity of the tax system and ensures that the deductions accurately reflect the economic activity of the business.