[Code of Federal Regulations]
[Title 26, Volume 2]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.162-1]

[Page 774-775]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.162-1  Business expenses.

    (a) In general. Business expenses deductible from gross income 
include the ordinary and necessary expenditures directly connected with 
or pertaining to the taxpayer's trade or business, except items which 
are used as the basis for a deduction or a credit under provisions of 
law other than section 162. The cost of goods purchased for resale, with 
proper adjustment for opening and closing inventories, is deducted from 
gross sales in computing gross income. See paragraph (a) of Sec. 1.161-
3. Among the items included in business expenses are management 
expenses, commissions (but see section 263 and the regulations 
thereunder), labor, supplies, incidental repairs, operating expenses of 
automobiles used in the trade or business, traveling expenses while away 
from home solely in the pursuit of a trade or business (see Sec. 1.162-
2), advertising and other selling expenses, together with insurance 
premiums against fire, storm, theft, accident, or other similar losses 
in the case of a business, and rental for the use of business property. 
No such item shall be included in business expenses, however, to the 
extent that it is used by the taxpayer in computing the cost of property 
included in its inventory or used in determining the gain or loss basis 
of its plant, equipment, or other property. See section 1054 and the 
regulations thereunder. A deduction for an expense paid or incurred 
after December 30, 1969, which would otherwise be allowable under 
section 162 shall not be denied on the grounds that allowance of such 
deduction would frustrate a sharply defined public policy. See section 
162(c), (f), and (g) and the regulations thereunder. The full amount of 
the allowable deduction for ordinary and necessary expenses in carrying 
on a business is deductible, even though such expenses exceed the gross 
income derived during the taxable year from such business. In the case 
of any sports program to which section 114 (relating to sports programs 
conducted for the American National Red Cross) applies, expenses 
described in section 114(a)(2) shall be allowable as deductions under 
section 162(a) only to the extent that such expenses exceed the amount 
excluded from gross income under section 114(a).

[[Page 775]]

    (b) Cross references. (1) For charitable contributions by 
individuals and corporations not deductible under section 162, see Sec. 
1.162-15.
    (2) For items not deductible, see sections 261-276, inclusive, and 
the regulations thereunder.
    (3) For research and experimental expenditures, see section 174 and 
regulations thereunder.
    (4) For soil and water conservation expenditures, see section 175 
and regulations thereunder.
    (5) For expenditures attributable to grant or loan by United States 
for encouragement of exploration for, or development or mining of, 
critical and strategic minerals or metals, see section 621 and 
regulations thereunder.
    (6) For treatment of certain rental payments with respect to public 
utility property, see section 167(1) and Sec. 1.167(1)-3.
    (7) For limitations on the deductibility of miscellaneous itemized 
deductions, see section 67 and Sec. Sec. 1.67-1T through 1.67-4T.
    (8) For the timing of deductions with respect to notional principal 
contracts. see Sec. 1.446-3.

[T.D. 6500, 25 FR 11402, Nov. 26, 1960, as amended by T.D. 6690, 28 FR 
12253, Nov. 19, 1963; T.D. 6996, 34 FR 835, Jan. 18, 1969; T.D. 7315, 39 
FR 20203, June 7, 1974, as amended by T.D. 7345, 40 FR 7437, Feb. 20, 
1975; T.D. 8189, 53 FR 9881, Mar. 28, 1988; T.D. 8491, 58 FR 53128, Oct. 
14, 1993]