What are the four tests to determine if an expense is tax deductible?

For any expense to be deductible, it must pass the following four "tests":

  • The expense must be ordinary. An ordinary expense is one that is common and accepted in your field of trade, business, or profession. Examples of ordinary expenses for pilots and flight attendants include items like calculators, a water bottle holder, an id holder, uniform expenses, etc.
  • The expense must be necessary. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be required to be considered necessary. If an expense passes the ordinary test, ask yourself is it necessary (i.e. helpful and appropriate for your business.) The four example expenses listed above are all helpful and appropriate, and they therefore pass the necessary test.
  • The expense must not be personal. A personal expense is one that you would likely have incurred even if you were not employed. If an expense would only have been incurred because of the job, it then passes the ordinary test. Examples that crewmembers often try to deduct, but fail the ordinary test are socks, underwear, haircuts, and wristwatches. None of these items can be deducted. Obviously they all pass the ordinary and necessary tests, but they all fail the personal test. You would incur the expense even if you weren't employed. Wristwatches are specifically listed in the tax code as a non deductible item.
  • The expense must not be prohibited by the tax code. Sometimes an employee business expense can pass all three of the tests above, yet still not be deductible. Take a wristwatch for example. A wristwatch can certainly be argued to be ordinary and necessary for airline pilot tax or flight attendant tax purposes. Furthermore, a pilot or flight attendant could argue that a wristwatch is not personal because they only bought it because of their airline employment. But unfortunately for all of the airline pilots and flight attendants with expensive wristwatches, IRS Publication 529 of the tax code specifically says that wristwatches cannot be deducted for any reason.

What's all this about?

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