Can I deduct business expenses paid by someone else?

Updated June 18, 2026 by Glynis Miller, CPA, MST

Tax questions like these are often the most difficult to answer. This is because, like most tax questions, a simple “Yes” or “No” will not suffice when it comes to the deductibility of business expenses. Instead, the answer is likely to be something like, “It depends.” And “it depends” can end up meaning, “Yes” for some, “No” for others, “Maybe so” for someone else, or even “Not now” for another taxpayer.

Because the question is not simple in terms of what the tax code allows, the answer is not simple. Understanding which classification of business expenses is in question can make all the difference in the right answer. So, you may ask, what do you mean by which classification of business expenses? Business expenses can refer to “employee business expenses” or “trade or business expenses.” The focus in this article is on the expenses of a qualified trade or business. If you need information on employee business expenses, click here.

For a qualified trade or business, a taxpayer is generally allowed to deduct business expenses that meet the following conditions: 
 

• Ordinary and necessary, 
• Paid or incurred during the year, 
• Not capitalized, 
• Are verifiable.

What does “ordinary and necessary” mean?

As it relates to expenses in a trade or business, “ordinary and necessary” must be viewed in the context of the operation's activities. For example, if something is said to be “ordinary,” it is generally viewed as being commonly used for the specific business activities being conducted. While to be considered “necessary,” the expenses must be helpful in furthering the business and appropriate to the type of business that is being conducted. When the expenses are commonly used and accepted for the type of business activity, they are generally considered ordinary and necessary.

 

What does “paid or incurred during the year” mean? 

Since taxes are calculated over a 12-month period (generally by calendar year, but can be on a fiscal year basis), expenses must also be calculated on the same basis. For expenses considered paid or incurred during the year, the expenses must have been paid for, or the obligation to pay for them occurred in the same year, to be deducted. An obligation generally arises when you pay for items by credit card or on a credit account. 

 

What does “not capitalized” mean?

In a qualified trade or business, certain items, such as buildings or equipment used in the activity, may need to be capitalized. The purchase price is generally carried on the books at full value when capitalized, and a deduction (depreciation) may be allowed over the useful life of the asset or at the time of business closure.

Capitalized items are classified by asset type, each with a specific useful life (the number of years deemed to be useful). The useful life and other depreciation method specifics will determine the amount of the deduction allowed over the asset's depreciation period. 

 

What does it mean to be verifiable?

Tax returns are filed based on the honor system. Taxpayers are allowed to self-report taxable income after considering any income, expenses, deductions, credits, and payments for the tax year to the proper taxing agency. Although taxpayers self-report, they are still required to maintain sufficient records. This proof is necessary in the event of an audit to prove not only the type of items purchased but also the cost and who paid for the item, as well as when they were purchased. By providing records for the reported items, a taxpayer is said to have verified or substantiated the deduction they originally claimed. 

If all the above conditions are met, the expenses are deductible. 

Now, let’s discuss the original question that was posed.

 

What if someone else paid these expenses? 

If someone else paid the expenses, the dynamics of the question change. As noted previously, the answer is generally “it depends.” It depends; generally, it means the answer will depend on the intent behind why someone else is paying for the expenses of a trade or business that is not their own, as well as whether there is income or not from the trade or business. So, this is how the answer could be “Yes, No, Maybe So, or Not Now.” But how on earth can that be possible? Well, here are a few examples to consider:  

Example 1 – Yes, you can deduct – A truck driver wants to operate his own truck as an owner-operator, but does not have the money to do so alone. So, he ends up working for a company that will allow him to purchase his truck directly from them, and they will pay the expense in advance. At the end of each pay period, the trucking company issues a check to the truck driver, deducting the cost of the truck, fuel, and other operating expenses. In this case, the truck driver reports his gross earnings from driver services and does not include any of these expenses in determining his business's gross income. These business expenses are recorded as current expenses throughout the year and are used to calculate net income. At the end of the year, it will allow for the net income from the activity to be reported on the tax return.

Example 2 – No, you cannot deduct – If someone is paying all of the business expenses directly without you having an obligation to repay them for those costs, you will not be able to deduct those items as your business expenses. Consider a “Social Influencer” whose parents are paying for the video camera, internet costs, website design, website hosting, and any other supplies used; in this case, the social influencer cannot deduct these costs as business expenses.

Example 3 – “Maybe so” or “Not now” (limited by income) – If a friend paid your business expenses and you do not have any income yet, then you may not be able to deduct them right away. As you earn income, you may be able to deduct some of the expenses up to the amount of income earned. If the expenses exceed the income, you are incurring a loss on the business, and the losses could be suspended until you earn additional income. However, in a case such as this, there must be an obligation to repay your friend for the investment in your business.  

Remember, a lack of verifiable proof can cause you to lose these deductions even when they would have been deductible. Thus, keep receipts, credit card statements, bank statements, canceled checks, copies of any invoices, and anything else that proves your expenses, who paid them, and when.

In conclusion, determining when business expenses can be deducted will always be based on the facts and circumstances. Additionally, in the event of an audit by a taxing authority, it is important that verifiable records can be produced to demonstrate that the expenditures were ordinary and necessary for the business activity, were paid or incurred in the year claimed, were not expenditures that should have been capitalized, and if paid for by someone else, you had an obligation to repay that individual.