Ordinary and Necessary

• The Internal Revenue Code, which serves as the ultimate authority in federal tax matters, provides that all expenses that are "ordinary and necessary" to operate a trade or business are deductible. In evaluating whether an expense is ordinary, taxpayers must assess whether it is an expense that other companies within the same industry commonly incur. However, the necessary requirement doesn't mandate that an expense be absolutely essential to claim a deduction for it. Rather, it only requires that the expense be helpful for your business to earn a profit. Since Louisiana businesses can use the same criteria for state income tax returns, it can reduce the time you spend preparing tax returns for your business.
  
  

Real Property Rentals

• A large portion of Louisiana businesses need to rent or lease real property for an office, warehouse, factory or retail space. Not much analysis is necessary to include your rental expense as a business deduction on your federal and Louisiana tax returns since it is one of the more common, and sometimes very substantial, expenses that businesses across all industries incur. However, the rent or lease payment you deduct must be reasonable in amount for the geographic area the property is located in.
  
  

Employee Wages

• There is no limitation on your federal or Louisiana tax return for the wages you pay your employees, provided it too is not unreasonable. There is no set monetary amount that the tax authorities will find unreasonable, but it's based on the facts and circumstances for each employee. In making this evaluation, consider the value of an employee's skill set, education and work experience. For example, claiming a deduction of $150,000 for the salary of a janitor may raise red flags. When you have employees, also be aware that the federal and Louisiana governments will require that you withhold portions of employee paychecks to cover state and federal income taxes they owe.
  
  

Company Vehicles

• Depending on the type of business you operate, it may be necessary for your company to own vehicles. If it does, you can deduct all expenses that relate to purchasing, maintaining and operating the vehicles, including insurance premiums, gasoline and repairs. However, if you use a company vehicle for personal purposes on more than an infrequent basis, you must allocate your car expenses between deductible business use and nondeductible personal use. Keep in mind that deducting car expenses is not "ordinary" for every type of business. For example, if you operate a food delivery business, it's unlikely the IRS or Louisiana will question your deduction. But if you own a golf course, it's more likely to raise questions.