Chapter 9: Business Income, Deductions, and Accounting Methods

Chapter 9: Business Income, Deductions, and Accounting Methods

1. Ordinary expense

   • Expense that is normal or appropriate for the business under the circumstances

2. Necessary expense

   • Expense that is helpful or conducive to the business activity but the expenditure doesn't need to be essential or indispensable

3. Permissible accounting method

   • Accounting method allowed under the tax law
     • Permissible accounting methods are adopted the first time a taxpayer uses the method on a tax return.

4. Impermissible accounting method

   • An accounting method prohibited by tax laws

5. To claim a tax deduction for an accrued expense, the expense must meet two tests: an all-events test and an economic performance test