Definition
Costs of running a business that are ordinary and necessary for it can be subtracted from business income, lowering the profit that is taxed.
What it means
The IRS lets businesses deduct expenses that are both ordinary, meaning common and accepted in that trade, and necessary, meaning helpful and appropriate for it. Examples include software, advertising, contractors, supplies, business travel and part of a phone used for work. Personal, living and family expenses are not deductible, and costs that serve both purposes must be split by business use. Items that last more than a year, such as cameras or computers, are generally recovered through depreciation or a section 179 deduction rather than deducted all at once. Business meals are generally limited to 50%. Sole proprietors report these deductions on Schedule C, and they lower both income tax and self-employment tax. Keep receipts and records showing the amount and business purpose.
Example
A photographer who uses her phone 60% for business and pays $900 a year for it can deduct $540 as a business expense.
Illustrative numbers only. Your situation will differ.