Are Business Expenses Tax Deductible?

Are Business Expenses Tax Deductible? A Guide for Law Firms and Professionals

We get a lot of questions from clients and prospects about whether certain expenses are tax deductions. It’s an important question—because knowing what’s deductible can save you money and help you make smarter financial decisions.

Here’s how to determine whether a business expense is tax-deductible or not.

How the IRS Defines a Business Expense

According to the IRS, a business expense is an expense that’s part of carrying on a trade or business. To qualify as a tax deduction, the expense must be both ordinary and necessary.

Ordinary means the expense is common and accepted in your industry.
Necessary means the expense is helpful and appropriate for your business—even if it’s not absolutely essential.

In other words, to be a tax deduction, it must be both:
– Ordinary and
– Necessary

What Does “Ordinary” Mean?

Let’s say an attorney wants to deduct the cost of a pony. This would not qualify because buying a pony is not considered ordinary for an attorney.

But if a petting zoo buys a pony, that expense would be considered ordinary—it’s a normal, expected part of running that kind of business. So, in that case, the pony is a tax deduction.

What Does “Necessary” Mean?

“Necessary” has a broader definition. It doesn’t mean the expense must be absolutely essential—just appropriate and helpful for your business.

For example, renting office space is a business expense. While it’s technically possible to work from home, having a dedicated office can be necessary to meet with clients and operate professionally. So, even if it’s not strictly required, it’s still a valid tax deduction.

How to Defend Your Tax Deductions

When determining whether an expense is deductible, CPAs rely on:

IRS Code
IRS Regulations
IRS Publications

When those sources aren’t clear, we also look at tax court cases. These court decisions help guide what the IRS is likely to allow or disallow.

If an expense could be considered personal, it’s especially important to back up your deduction with prior court rulings. The IRS uses these same cases to decide whether they would win or lose in tax court—and you should do the same.

Common Tax Deductions for Law Firms and Professional Service Providers

Here are examples of frequently allowed deductions. Use these as a guideline when evaluating your own expenses.

Advertising and Marketing

Includes business cards, websites, Google or social media ads, billboards, and any other promotions for your business.

Office Expenses and Supplies

Covers equipment, software, pens, paper, toner, and tools used to run your office.

Rent

If you rent commercial space, the full rent is tax deductible.

Home Office

If you work from home, you may qualify for a home office deduction. Two key tests must be met:

1. Regular and exclusive use of the space

2. It must be your principal place of business

Retirement Plans

Contributions to retirement plans (like SEP IRAs or Solo 401(k)s) reduce taxable income and help build long-term wealth.

Travel and Lodging

Expenses for business travel, conferences, client meetings, or continuing education are deductible. If the trip includes personal time, you can still deduct the business-related portion.

Meals

You can typically deduct 50% of meals related to business activities (e.g., client or employee meals). Meals provided at office parties or events may be 100% deductible.

Insurance

Includes malpractice insurance, workers’ comp, and coverage for your office or equipment.

Continuing Education

Courses, certifications, or training needed to stay current in your profession can be deducted.

Need Help with Deductions? Let’s Talk

Aligned CPA helps law firms and professional service businesses stay compliant and optimize deductions. If you’re wondering whether your expenses qualify—or you just want to simplify your accounting—we’d love to talk.

Are Business Expenses Tax Deductible?