Tax School Practice Test

Eligible tax deductions typically encompass expenses that are considered "ordinary and necessary" in the context of carrying on a trade or business. This means that the costs must be common and accepted in the industry, as well as helpful and appropriate for the business activities. For instance, expenses such as rent for office space, supplies, employee wages, and utilities are all deductible as they directly relate to the functioning of the business.

In contrast, personal living expenses are not deductible because the tax code maintains a distinction between personal and business expenses. Educational expenses can be deductible, but only if they are specifically related to maintaining or improving skills required in one's current trade or business, rather than being broadly applicable. Charitable contributions are also eligible deductions but are limited to contributions made to qualified organizations, not all expenses are eligible under this category. Thus, the eligibility criteria for tax deductions is quite specific, and business-related expenses fit that criteria best.