According to Howell, the expense is considered deductible if it meets certain requirements. They include the following:
- Be purely for business reasons
- Not be a lavish but ordinary and necessary business expense
- Be Incurred during business activity
- Be sufficiently accounted for in records
Expenses incurred for business purposes are deducted during taxation. However, some expenses which are personal in nature may be associated with business purposes. For example, entertainment and meals expense can be personal or be linked with business. These expenses can be abused by taxpayers if they are not controlled by some specific rules. For instance, entertainment and meals expenses can be genuine business expenses. However, they may sometimes fail to meet deductibility requirements or may lack business purpose. This encourages taxpayers to attempt deducting them from taxable income. Thus, specific rules on deductibility have been developed to provide guidance or a roadmap on how deductions should be made.
Additionally, personal expenses need to be proven for deductibility. For example, car expense needs adequate scrutiny for it to be validated. This can be achieved through specific rules. Deduction of some of the business expenses such as entertainment and meals has created a lot of controversy since its enactment. The existing rules provide the taxpayers with standards of deductibility. However, these standards are subject to manipulations or abuse, leaving the application of the law ineffective. Such expenses are deductible if the business connection is substantiated. In other instances, the taxpayer is allowed to deduct a portion of expenses connected to the business. However, current laws allow full deductibility even when the expense and the business activity are not associated at all. Special rules ensure that efficiency is observed during the deductibility of expenses.
These specific rules promote fairness. Current treatment of some business expenses such as entertainment and meals encourage taxpayers to include personal expenses while at work. However, many other taxpayers do not benefit from this incentive because they hold jobs that do not allow such expenses. Therefore, special rules help to strike the balanced on deductions, hence maintaining fairness. Abuses of tax deductions seriously undermine the integrity of a tax system. Abuses are propagated by people who assail tax pay as unfair. Limitations set by special rules help to eliminate such unfair perceptions. Finally, these rules help to identify moving expenses as well as specify allowable expenses.