[1][3] Often, deductions are subject to conditions, such as being allowed only for expenses incurred that produce current benefits.
To be deducted, the expenses must be incurred in furthering business, and usually only include activities undertaken for profit.
This may be considered an expense, a reduction of gross income,[4] or merely a component utilized in computing net profits.
[5] The manner in which cost of goods sold is determined has several inherent complexities, including various accounting methods.
By contrast, the U.S. allows as a deduction "all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business..."[11] subject to qualifications, enhancements, and limitations.
[18] Further, taxpayers often have choices among multiple accounting methods permissible under GAAP and/or tax rules.
This came after the Federal Court ruled in Commissioner of Taxation v La Rosa that a heroin dealer was entitled to a tax deduction for money stolen from him in a drug deal.
[26] Examples include plant and equipment, fees related to acquisition, and developing intangible assets (e.g., patentable inventions).
[28] The annual depreciation deduction may be computed on a straight line, declining balance, or other basis, as permitted in each country's rules.
[35] Some systems distinguish between an active trade or business and the holding of assets to produce income.
[36] In such systems, there may be additional limitations on the timing and nature of amounts that may be claimed as tax deductions.
Many systems allow a deduction for loss on sale, exchange, or abandonment of both business and non-business income producing assets.
Also, in the U.S. a loss on the sale of the taxpayer's principal residence or other personal assets is not allowed as a deduction except to the extent due to casualty or theft.
Many jurisdictions allow certain classes of taxpayers to reduce taxable income for certain inherently personal items.
In addition, many jurisdictions allow reduction of taxable income for certain categories of expenses not incurred in connection with a business or investments.