Question

Which of the following is not a test to deduct business expenses:

a. The expense must be ordinary and necessary
b. The expense must have a legitimate business purpose
c. The expense must be reasonable
d. The expense must be lavish and extravagant

Answer 1

The correct answer is letter "D": The expense must be lavish and extravagant.

Step-by-step explanation:

The Internal Revenue Service (IRS) offers taxpayers the ability to deduct business expenses under the condition that those deductions meet the criteria of being "ordinary and necessary". It implies those deductions must be business-related and necessary, helpful and appropriate for the operations. The expenses subject to the deduction are outlined in Section 162(a) of the Internal Revenue Code.

Lavish and extravagant expenses are unlikely to be considered as part of business expenses, thus, the are considered as part of taxpayers' deductions.