nondeductible

Nondeductible is a term used in tax and accounting to describe expenses, contributions, or other items that cannot be deducted from gross income to reduce taxable income under a given tax law. When an item is nondeductible, it does not lower the tax liability for the year in which it is incurred, and in many cases it must be treated differently in tax calculations, such as being added back to income in certain computations or bases calculations. Nondeductible items may still appear in financial statements for accounting purposes but are not recognized as tax deductions.

Common examples include fines and penalties paid to government authorities, bribes or illegal payments, political contributions, and the personal portion of mixed-use expenses (for example, personal travel or personal use of a vehicle). Some otherwise ordinary business costs may be nondeductible if they do not meet statutory criteria; for instance, certain meals or entertainment expenses may be disallowed or limited, and club dues not directly related to business activities are typically nondeductible. In some jurisdictions, portions of contributions to retirement accounts or traditional IRAs may be nondeductible, with the tax basis tracked separately.

Why it matters: identifying nondeductible items helps taxpayers and businesses accurately calculate taxable income, maintain proper records, and plan for tax liabilities. Nondeductible does not imply a cost is wasted; it simply cannot be used to reduce taxes in the current period.