Deductions, Expenses, and Capital Expenditures
Learn about the general nature of tax deductions, along with how to tell the difference between an expense and a capital expenditure and why the distinction matters.
In this lesson, we'll cover the treatment of taxpayer costs under the Internal Revenue Code, or IRC.
Outlays and Losses
As we've learned, a taxpayer computes taxable income by subtracting allowable deductions from gross income. Under the IRC, each deduction relates to either an outlay or a loss. The only deductible outlays are those the IRC expressly makes deductible. All others are nondeductible. See 26 U.S.C. § 161; White v. United States, 305 U.S. 281 (1938). Most ordinary business...