Disallowed Expense

Disallowed Expense

A Disallowed Expense is an expenditure that cannot be deducted from taxable income when calculating tax liability. These expenses are not recognized by tax authorities as legitimate business costs, often due to non-compliance with tax regulations or specific restrictions outlined in tax laws.

Common examples of disallowed expenses include personal expenses that are mixed with business use, penalties and fines incurred, and certain entertainment expenses that exceed IRS limits. Since they cannot be deducted, they can increase the overall taxable income and, consequently, the tax owed by an individual or business.