I don't know about the US tax system, but at least in my experience here in Australia, not every expense incurred by a business or partially-taxed non-profit is necessarily deductible. For example, I formed a company with some friends for the purpose of work on a single contract, and the expenses we incurred in incorporating the company were only deductible at a rate of 20% per year over 5 years, so we ended up having to pay tax without being able to deduct most of that particular set of expenses during the 1 year we were in operation.