Publication 535 is critical for EA Exam Part 2 (Businesses). Candidates will face multiple scenario questions where they must decide whether an expense should be capitalized or immediately written off. Pay close attention to rules surrounding automobile expenses, business travel, interest expense limitations, and insurance premiums.
IRS Publication Guide
IRS Publication 535: Business Expenses Guide for EA Exam Part 2
HS
Written By
Hiren Soni, CA
TN
Fact-Checked By
Tom Norton, CPA, EA
Last Updated
July 10, 2026
Tax Law Compliance
IRS SEE 2025/2026 Rules
At a Glance: Quick Summary
Quick Answer:
IRS Publication 535 details the rules for deducting business expenses. To be deductible under Internal Revenue Code Section 162, a business expense must be both ordinary and necessary.
Tax Definition:
Business expenses are the costs of carrying on a trade, business, or profession. Publication 535 explains which expenses can be deducted in full, capitalized, amortized, or disallowed entirely (such as personal expenses, fines, and political contributions).
Key Takeaways:
- Ordinary Expense: Common and accepted in your industry.
- Necessary Expense: Helpful and appropriate for your trade or business.
- Capital Expenditures: Assets with a useful life exceeding one year must be capitalized rather than expensed.
- Section 179 Deduction: Allows businesses to expense the full cost of qualifying equipment in the year of purchase.
Key Statistics & Parameters
150+ Questions
LMS Practice Questions
High (Part 2)
SEE Exam Weight
IRC Section 162
Primary IRS Section
Schedule C (Form 1040), Form 1065, Form 1120
Related Entity Schedules
Tax Limits & Comparison
| Expense Category | Tax Treatment | IRS Code Section |
|---|---|---|
| Section 179 Expensing | Immediate expensing up to inflation limits | IRC Section 179 |
| Startup Costs | First $5,000 expensed, balance over 15 years | IRC Section 195 |
| Business Meals | Generally 50% deductible if business is discussed | IRC Section 274 |
| Entertainment | 100% non-deductible | IRC Section 274 |
Frequently Asked Questions
An ordinary expense is common and accepted in the taxpayer's trade or business. A necessary expense is one that is helpful and appropriate for that trade or business, though it does not have to be indispensable.
No. Fines or penalties paid to a government entity for the violation of any law are strictly non-deductible under federal tax regulations.
Official IRS References & Citations
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