One-Time Expense
A one-time expense is a cost that hit the income statement because of a specific event not expected to repeat, such as a legal settlement, storm damage, an abandoned sale process, or a system implementation, and that therefore overstates what the business costs to run going forward. A one-time expense is added back at the documented cost of the event itself, capped at the increment above the account's normal run rate and never at the full balance of whatever account it happened to land in.
Also called Non-Recurring Expense, Unusual and Infrequent Item, Extraordinary Item, One-Off Cost · Last updated 2026-08-07 · All 24 terms
Unusual and infrequent, both
The test a buyer applies has two parts and an item has to clear both. The cost must be unusual in nature, meaning outside the ordinary activities of the business, and infrequent in occurrence, meaning there is no reasonable expectation of it recurring in the foreseeable future.
Those two criteria are inherited from US accounting practice, where they defined the extraordinary items category. FASB Accounting Standards Update 2015-01, issued in January 2015, eliminated that concept from US GAAP, so extraordinary item is no longer a valid financial-reporting label. The two-part test survived it as the working standard in transaction analysis. When someone across the table calls an item extraordinary, they mean unusual and infrequent, not a GAAP classification.
- Usually clears both tests: a lawsuit settlement and the litigation fees to reach it, an uninsured casualty loss, severance from a single reorganization, facility relocation costs, professional fees of an abandoned sale or financing, a one-time ERP or software implementation
- Usually fails: equipment repairs, because a business that owns equipment repairs equipment every year; recruiting and turnover costs in a high-churn trade; bad debt write-offs; annual bonuses that happen to vary in size
Add back the increment, not the account
The most common overreach is adding back an entire account balance because a one-time event landed inside it. The defensible add-back is the increment above that account's normal level, and three years of the same account is what exposes it.
A contractor's Legal and Professional Fees line reads $19,400 in 2023, $22,100 in 2024, and $126,800 in 2025. The seller proposes adding back the whole 2025 balance as one-time litigation cost.
Invoices for the settlement and for litigation counsel total $85,000. Net that out and $41,800 of legal and professional fees remain in 2025, against a two-year run rate of $20,750. So $21,050 of the year is elevated and still unexplained.
The supportable add-back is $85,000, and the residual $21,050 is a diligence question rather than an add-back. Presenting it that way carries further than claiming the full $126,800, because it shows a schedule built from documents rather than from the difference between two years.
One-time income runs the other way
Recasting is symmetrical, and a schedule that only ever adds is a schedule buyers stop trusting. A non-recurring gain inflates earnings exactly the way a non-recurring cost depresses them, so it has to come out.
Gain on the sale of a vehicle or piece of equipment is the most frequent one on a small-business P&L. An $18,000 gain on a delivery truck sold during the year reduces normalized earnings by $18,000, and at an illustrative 3.0x multiple that is $54,000 of price a seller should never have been quoted.
- Insurance recoveries in excess of the recorded loss
- A legal settlement received rather than paid
- A lease-termination or landlord inducement payment
- One unusually large project from a customer who will not repeat it
- Pandemic-era credits: Employee Retention Credit refunds and PPP loan forgiveness were still being recognized as other income in some 2023 statements, so as of 2026 they can fall inside a three-year lookback
When one-time shows up three years running
A one-time expense that appears in consecutive years is a cost of doing business wearing the wrong label. Storm damage in a coastal market, a yearly round of unusual equipment failures, or a repeating pattern of employee lawsuits are operating realities of that specific company, and normalizing them away sells a business that does not exist.
Laying the proposed one-time items out by year, before deciding anything, is what catches this. Where the same theme appears in two years of three, the item either leaves the schedule or comes back only at the amount by which the worst year exceeded the others. A quality of earnings analyst runs exactly that exercise, which is a reason for the schedule to have survived it first.
Two boundary cases sit close by. A depreciation spike from a Section 179 election or bonus depreciation is not a one-time expense, because depreciation and amortization is already added back in full as a non-cash item and treating the spike separately counts it twice. And a cost that will not recur because the buyer intends to change something, rather than because the event has passed, is a pro-forma adjustment, which belongs in a different and considerably less credible column.