Registered Tax Return Preparer RTRP Practice Exam

Self-employed individuals can deduct business expenses that are both ordinary and necessary for their trade or business. These expenses include the costs for supplies, equipment, advertising, travel, and other operational necessities that are directly related to running their business. By deducting these costs, self-employed individuals can effectively lower their taxable income, thereby reducing their overall tax liability.

For example, if a self-employed graphic designer purchases software or hardware specifically for their design work, these expenditures qualify as business expenses. Additionally, any materials used in the course of providing services or creating products are also deductible.

The other options encompass various types of expenses that do not qualify for deduction in the same manner. Personal expenses are unrelated to business and cannot be deducted, while luxury items may not be deemed necessary for operating a business, thus not qualifying as deductibles. Childcare costs typically serve personal rather than business needs, and while home improvements might contribute to business operations if part of a home office, they generally do not qualify without proper allocation and documentation.