What are allowable business expenses?

Allowable business expenses are specifically costs that a business incurs that are necessary and directly related to carrying out its trade. This means that for an expense to be considered allowable, it must be essential for the operation of the business, contributing to the generation of income or preventing loss. Allowable expenses include items such as rent for business premises, salaries for employees, utility costs, and materials used in production.

The other options do not meet the criteria for allowable business expenses. Expenses unrelated to the trade do not contribute to the business’s operations and cannot be deducted from taxable income. Similarly, while a business may incur many expenses, it is not the case that all expenses are allowable; personal costs of the business owner, for instance, cannot be claimed as business expenses as they do not pertain to the business operations. Therefore, the focus on necessity and relevance to the business trade underscores why the correct choice identifies expenses that are essential for carrying out business activities.