Did you incur the expense because of the way you earn your income?

For many of the examples above, the answer is yes. This is often the first test people focus on, and it's usually where people feel most confident. After all, if an expense directly relates to your job or business, it's natural to assume it should be deductible.

But that's only the first hurdle.

Even where there's a clear connection to work, the tax rules don't allow deductions for expenses that are considered private in nature. Nor can you generally claim the cost of purchasing an asset simply because it's used for work.

A suit is a common example. Even if you're required to wear it when meeting clients, conventional clothing is generally considered a private expense. The same principle applies to personal grooming. Keeping your hair short may be a workplace requirement, but grooming costs remain private regardless of who imposes the rule.

Buying a car is another example. While you may use it for work purposes, purchasing the vehicle is considered acquiring an asset rather than incurring a deductible expense. And placing a business logo on the side doesn't automatically turn private travel into business travel. The trip to and from work remains private, logo or not.

Sometimes an expense passes the first two tests but is blocked by a specific rule in the tax law. Fines and penalties are among the clearest examples. A parking fine may arise while you're working, but it isn't deductible.

Other expenses can fall into the same category, including certain entertainment costs, some club memberships, and paying travel expenses for a spouse or partner.

In other words, it's not enough for an expense to be work-related. To be deductible, it needs to satisfy all three questions. That's why assumptions can be costly at tax time. An expense may feel completely necessary to perform your role, but the tax rules don't always view it the same way.