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Tax Guide to Business Expenses #493526

Course Overview

Credit

Amount

CPA

EA / OTRP

Course Author: Danny Santucci, J.D. Field of Study (CPA): Taxes Field of Study (EA/OTRP): Federal Tax Law

Course Description

Course publication/revision date: This course was updated on 8/6/2026 (covers 2026 tax year).

Business expenses are the costs of carrying on a trade or business, and they are usually deductible if the business is operated to make a profit. This mini-course reviews various expenses that businesses may deduct and the requirements that must be met for those expenses to qualify for deduction. Furthermore, practitioners can use this as a guide to determine which of their clients’ taxes are deductible as business expenses.

Table of Contents

Section 1621

Cost of Goods Sold - §612

Capital Expenses - §2633

Cost Recovery Depreciation - §168

Personal vs. Business Expenses3

At-Risk Amounts - §4653

Passive Losses - §4694

Net Operating Loss - §1724

Creation of an NOL	4
Individual NOLs	4
Carryovers	4
Farming	5
Corporate NOLs	5

Timing of Expense Deduction6

Economic Performance - §461	6
Prepayment of Expenses	6
Contested Liability	7
Related Person - §267	7

Expenses of Not-for-Profit Activities - §1837

Presumption of Profit	8
Using the Presumption Later	8
Limit on Deductions	9
Partnerships & S Corporations	10
More Than One Activity	10

Rent Expenses10

Rent Paid In Advance	11
Lease vs. Sale	11
Leveraged Leases	12
Leveraged Leases of Limited-Use Property	12
Leases Over $250,000 - §467	12
Taxes on Leased Property	13
Cost of Getting a Lease	13
Options to Renew	14
Cost of a Modification Agreement	14
Commissions, Bonuses, & Fees	14
Loss on Merchandise & Fixtures	14
Leasehold Improvements - §168	14
Assignment of a Lease	15
Capitalizing Rent Expenses - §263A	15

Interest Expense - §16315

Business Interest - §162	16
Interest Paid In Advance	16
Mortgage Interest	17
Prepayment Penalty	17
Points - §461	17
Interest on Installment Purchases - §483 & §1271	17
Nondeductible Interest	17
Interest on Income Tax Owed	18
Penalties	18
Commitment Fees & Service Charges	18
Capitalized Interest	18
Production Period	19
Traced Debt	19
Avoided Cost Debt	19
When Interest Is Paid or Incurred	20
Partnerships & S Corporations	20
Interest on Insurance Policy Loans - §264	20
Single Premium Life Insurance	20
Systematic Plan of Borrowing	20
Key Person Insurance	21
Deductibility of Premiums & Interest on Life Insurance	21
Existing Interest on Purchase	21
Corporate Acquisition Interest	21

Deductible Taxes22

Tax Refunds	22
Change in Date of Tax Accrual	22
Real Estate Taxes	22
Local Benefits	22
State & Local Income Taxes	23
Foreign Income Taxes	23
Employment Taxes	23
Unemployment Fund Taxes	23
Self-employment Tax	23
Other Taxes	24

Business Casualty & Theft Losses - §16524

Proof of Loss	24
Amount of Loss	24
Limitations	25

Pass-Through Business Deduction - §199A25

Dividends Received Deduction - §24326

Dividends from Domestic Corporations	26
65% Exception	26
Ownership	26
Limitation	27

Other Selected Deductible Costs29

Home-Office Deduction - §280A	29
Requirements - §280A	29
Non-Exclusive Use Exceptions	29
Income Limitation	30
Administrative or Management Activities	30
Research & Experimental Costs Deduction - §174A	30
Definitions – Reg. §1.174-2	31
Product	31
Costs Not Included	31
Interaction with Research & Development Credit - §41 & §280	32
Business Start-Up & Organizational Costs – §195	32
How to Make the Choice	32
Carrying Charges	32
Retired Asset Removal Costs	33
Barrier Removal Costs	33
Deduction Limit	33

Amortization33

Deducting Amortization	33
Start-Up Costs - §195	33
Amortization Period	34
Qualifying Costs	34
Purchasing an Active Trade or Business	34
Corporate Organizational Costs - §248	34
Qualifying Costs	34
Nonqualifying Costs	35
Partnership Organizational Costs - §709	35
Qualifying Costs	35
Partnership Liquidation	35
Costs of Obtaining a Lease - §178	36
Intangibles - §197	36
Section 197 Intangibles Defined	36
Goodwill	36
Going Concern Value	37
Workforce in Place, Etc.	37
Business Books & Records, Etc.	37
Patents, Copyrights, Etc.	37
Customer-Based Intangible	37
Supplier-Based Intangible	38
Government-Granted License, Permit, Etc.	38
Covenant Not To Compete	38
Franchise, Trademark, or Trade Name	39
Professional Sports Franchise	39
Contract for the Use of, or a Term Interest in, a §197 Intangible	39

Optional Method for AMT Preferences - §5939

Depletion - §61339

Cost Depletion	40
Basis for Depletion	40
Total Recoverable Units	40
Number of Units Sold	41
Determining the Cost Depletion Deduction	41
Percentage Depletion	41
Gross Income	42
Taxable Income Limit	42
Business Bad Debts - §166	42
Credit Transactions	43
Income Inclusion	43
Accrual Method Taxpayers	43
Cash Method Taxpayers	43
Former Business	44
Debt Acquired from a Decedent	44
Political Debts	44
Insolvency of Partner	44
Business Loan Guarantees	45
Reporting	45
Methods of Treating Bad Debts	45
Specific Charge-Off Method	45
Partly Worthless Debts	45
Deduction Disallowed	46
Totally Worthless Debts	46
Recovery of Bad Debt	46
Property Received for a Debt	46
Bankruptcy Claim	47
Sale of Mortgaged Property	47
Net Operating Loss	47
Nonaccrual-Experience Accounting Method	47
Performing Services	47
Interest & Late Charges	48

Depreciation - 16848

Personal Property	49
MACRS	49
Elections	50
Bonus (or Additional First-year) Depreciation - §168(k)	50
MACRS Conventions	51
Mid-quarter Convention Exception	51
Recapture - §1245	51
Real Property	51
MACRS	51
Recapture - §1250 & §1245	52
Section 1245	52
Full Recapture	52
Section 1250	52
Partial Recapture	52
MACRS Recapture Exception for Real Property	52
Alternative Depreciation System - §168(g)	52
Mandatory Application	52
Method	53

Course Details

Author: Danny Santucci, J.D.

Danny earned his Bachelor of Arts in Political Science from the University of California at Irvine in 1969. He received his Juris Doctorate from Boalt Hall School of Law, University of California at Berkeley in 1972, at which time he began practice as a tax attorney in Southern California. His legal career was initiated with the business and litigation firm of Edwards, Edwards and Ashton. Later he joined the Century City entertainment firm of Bushkin, Gaims, Gaines & Jonas working for many well-known celebrities. In 1980, Danny established the law firm of Santucci, Potter and Leanders, in Irvine, California. With increasing lecture and writing commitments, Danny went into sole practice in 1995. His practice emphasizes business taxation, real estate law and estate planning. Danny has been an officer and active member in various organizations including the Glendale Bar Association, Century City Bar Association, Orange County and Los Angeles County Bar Associations, California State Bar Association, Toastmasters and Lions Club. He also avidly supports the American Association for the Advancement of Science. He has been admitted to practice before all California and federal courts including the United States Tax Court and the United States Supreme Court. Serving as a lecturer for the Continuing Education of the Bar of California, Golden Gate University, and numerous state C.P.A. societies, Danny teaches a variety of tax, business and real estate courses. Danny has been in demand all across the country as a speaker for all levels of professional and civic organizations and numerous major seminar circuits. Danny spoke to over 2,000 people per month and traveled more than 150,000 miles annually. In 2015, he withdrew from the lecture circuit to devote himself to tax research and writing. The author of numerous texts, he is listed in "Who’s Who in Creative Real Estate" and is admitted to the American Exchangor’s Hall of Fame.

Publication/Revision Date: 8/6/2026

Course Exam Questions (online): 10 (multiple-choice)

Program Delivery Method: Self-Study (NASBA QAS Self-Study)

Available Formats of Course Text: PDF or PDF plus printed copy sent in the mail

Course Level, Prerequisites, and Advance Preparation Requirements

License	Course Level	Prerequisites	Advance Preparation Requirements
CPA	Overview	None	None
EA/OTRP	Overview	None	None

* This program is appropriate for professionals at all organizational levels.

Sponsor ID Numbers

National Registry of CPE Sponsors ID: 107615

IRS Qualified Sponsor I.D.: FWKKO — Course ID: FWKK0-T-00790-26-S

State CPA Board Sponsor ID Numbers (where applicable)

Florida Division of Certified Public Accounting: 0004761

Hawaii Board of Public Accountancy: 14003

New York State Board for Public Accountancy: 002146

Ohio Accountancy Board: CPE .51 PSR

Pennsylvania State Board of Accountancy: PX178025

Texas State Board of Public Accountancy: 009349

Learning Objectives

As a result of studying the course material, you should be able to meet the objectives listed below:

Cite the elements of §162 and the not-for-profit limitations noting their impact on business deductions such as cost of goods sold, leases, and loan points.
Specify casualties, thefts, and research costs in the context of business deductions under §162.
Recognize methods of amortization for business startup, organizational costs, and §179 intangibles with the cost depletion methods used on natural resources.
Identify depreciation rules related to ACRS and MACRS, and cite the elements of the business bad debt provisions under §166.

Online Book, Online Exam

$25.00

Hardcopy Book, Online Exam

$37.00