The two categories of business expense are:

• Trade or business expenses, and
• Expenses for the production of income (investment expenses).

All expenses must be classified into one of the categories to determine the proper reporting and limitations on the deduction of the expenses.  A trade or business expense is fully deductible in calculating adjusted gross income of an individual.  An expense for the production of income is usually subtracted from adjusted gross income as an itemized deduction.  As an itemized deduction, the expense may be limited based on the taxpayer’s adjusted gross income.  Also, the taxpayer will only receive a benefit from a production of income expense if the taxpayer itemizes his/her deductions.