Final answer:
Deductible business expenses for tax purposes include capital expenses and ordinary and necessary expenses. Personal and luxury expenses are non-deductible as they are not directly related to the business operations. Wages and rent for business premises are examples of explicit deductible costs.
Step-by-step explanation:
The terms describing business expenses that would be deductible by the taxpayer are: capital expenses and ordinary and necessary expenses. Capital expenses are costs that a business incurs to acquire or improve a long-term asset such as equipment or buildings. Ordinary and necessary expenses are costs that are common and accepted in the business field and are helpful and appropriate for the business. An example of an ordinary and necessary expense is rent for office space. Personal expenses and luxury expenses are generally not deductible as they are not directly related to the business operations and are not considered necessary for the production of income.
Examples of explicit costs, which are deductible, include wages paid to employees and rent for the business premise. Implicit costs, such as the opportunity cost of using resources the firm already owns like using part of a home as a retail store, also play a role in the financial considerations of a business, but they are not out-of-pocket expenses and therefore are treated differently for tax purposes.