Running a US entity means constantly asking "does this expense actually count?" If you're used to how Korea's National Tax Service (NTS) handles this, the IRS's approach can feel different. Here's a breakdown of the key differences.
The IRS: built around the "ordinary and necessary" standard
US tax law (Internal Revenue Code §162) requires that a deductible business expense be "ordinary and necessary." Ordinary means common and accepted in your particular trade or industry; necessary means helpful and appropriate for your business — it doesn't have to be indispensable, just genuinely useful. It's a comparatively flexible, qualitative standard. Importantly, this standard is industry-specific. An expense that's ordinary for a restaurant (kitchen equipment, linens) might not be considered ordinary for a software company.
Korea's NTS: built around documentation thresholds
Korea's NTS shares the basic principle that expenses must be ordinary and business-related, but in practice it leans much more heavily on documentation and specific monetary thresholds. Business disbursements over KRW 30,000 generally require "qualifying evidence" — credit card sales vouchers, cash receipts, or tax invoices. Failing to produce this documentation can trigger a penalty (typically around 2% of the unsupported amount), and records generally need to be retained for 5 years (7 years for cross-border transactions).
The core difference: qualitative judgment vs. documentation thresholds
The biggest difference is this: the IRS focuses on a qualitative question — is this expense ordinary and helpful to the business? — while Korea's NTS puts more weight on a concrete threshold (KRW 30,000) and specific paperwork requirements. In the US, the nature of the expense and its relevance to your industry matters more; in Korea, having complete documentary evidence is the more direct risk factor.
What this means in practice
If you're running a US entity as a Korean company, a "just keep the receipt" mindset borrowed from Korean practice isn't quite enough — you should be able to explain why an expense was genuinely ordinary and helpful to running the business. Conversely, if you get used to the US approach, you may end up under-documenting expenses back in Korea, where the paperwork threshold matters more directly. If you're operating across both systems, it's worth tracking each system's requirements separately rather than assuming one approach covers both. The US system also has category-specific limits worth knowing — meals, for example, are generally only 50% deductible — and keeping personal and business expenses clearly separated in your records matters a lot if you're ever audited.
Key takeaway
The IRS emphasizes a qualitative "was this ordinary and necessary" test, while Korea's NTS emphasizes a documentation threshold (KRW 30,000) and specific paperwork requirements. When running a US entity, keep records that explain why an expense was business-related, and be aware of category-specific limits like the 50% meals deduction.