1205.Deduction of Business Expenses

1205.1What expenses must be deducted?

All allowable business expenses, except those incurred by certain church employees who are treated as self-employed (see 1136), must be deducted in computing net earnings from self-employment.

1205.2Who is responsible for taking the deduction?

If you are an operator of a business who becomes liable for a business expense, you must take the deduction even if the expense is paid by someone else.

If you rent the property where you conduct your business and your son pays the rent, you must deduct the rent because you became liable for it. If your son owns the property where the business is conducted, you cannot deduct expenses such as taxes, insurance, and repairs, paid by your son in connection with the property because you did not become liable for them.

1205.3Must deductions be taken for non-cash expenses?

Yes, you must take a deduction for an expense even though it is paid with something other than cash. Expenses paid in property are deductible, usually in the amount of the cost or “adjusted basis” (generally it cost less than the amount it has depreciated) of the property transferred.