How to Categorize Expenses for a Small Business: Categories to Consider

how to categorize expenses for a small business

Expense categorization and an effective financial plan are very important for small businesses. It will help you in deciding the write-off expenses at the time of tax payment. You can simply make headers and assign different charges to categorize expenses for a small business. It will benefit you to manage the budget and ordinary expenses of your company. You can also take the help of expense management software or accounting software to categorize business expenses.

You can Categorize Expenses For a Small Business as:

1.Office Supplies:

Office expense includes the expenses of office machinery, equipment, and other material such as:

  • Fax machine
  • Computer or laptops
  • Furniture
  • Printer

 These, along with many others. If you are buying new machinery for your office, you must record the expenses with you.

2.Professional Service:

Many companies do not have professionals for their special projects, so they need to hire them temporarily. For that, you need to give them monthly or contract base wages or funds. These type of professional services includes:

  • Accountants
  • Security consultants
  • Marketing consultants
  • Tradesmen
  • Lawyers
  • Content writers
  • Web designers
  • Software managers

All of these are the ‘professional services’ you may need for your company.

3.Rent, Utility costs, and Phone Expense:

If you are running a business on someone else’s property, you have to add the amount of office space rent you pay to your expenses. If you have your property or you are working from home, even then, you have to keep track of expenses like electricity bills, gas bills, and telephone bills.

4.Business Travel Expenses:

For expanding your business, you need to travel a lot to distant places for the sake of business meetings or sales trips. The traveling expenses may include the charges of:

  • Airline tickets
  • Cabs
  • Food
  • Laundry
  • Phone calls
  • Hotel expense

5.Marketing and Advertising Expenses:

It includes all the marketing expenses including advertisement for your company or products. It may include the charges of ads that appear on radio, television, newspaper, magazines, billboards, and direct emails. You can also add the production cost of the ad under the same header.

6.Business Vehicles:

Running a business without vehicles is nearly impossible. You have to pay some amount for a business vehicle. It is necessary to keep a record of all the expenses of business vehicles.

These expenses may include:

  • Garage rent
  • Parking
  • Tolls
  • Mileage
  • Maintenance and repairs
  • Gas and oil changes
  • Tire replacement
  • Registration fees and taxes
  • Vehicle loan interest
  • Rent payments
  • Insurance

If you are using a business vehicle for your work, you must record the expenses separately. Otherwise, it will affect the management of your business expenses.

7.Payroll:

One of the major expenses of a business is the pay of its employees. You need to sort the wages in a way that will not over-burden your business expenses. Try smarter ways to decide your employees’ wages so that you could not face any problems in the future.

8.Employee Benefits:

Some good companies offer extra employee benefits to keep the good quality of their work and retain efficient staff. These benefits include:

  • Group Insurance (health insurance, dental, life, and disability)
  • Free Education and Training 
  • Paid Vacation
  • Sick Days leave
  • Child care
  • Fitness Club Membership
  • Retirement benefits
  • Transport facility

Well-established businesses also offer house cleaning and domestic help. Providing these benefits to the employees charges heavy expenses on the company.

9.Meals and Entertainment Expenses:

It includes the expenses of annual dinners or other parties for celebrating different events. Arranging trips for employees or going for outings with staff charge expenses to the company. 

These expenses are just a waste of money if you are running a small business. But if your business is well-established, you can arrange such dinners and outings but keep the expenses in your mind.

10.Office Expenses:


Office Expenses are ordinary expenses that a business incurs in order to run the business, like purchasing new computer equipment, software, fax machine, printer, etc.

The other topics this article covers are:

What Can I Write-off For business Expenses?

According to the IRS, expenses must be both ‘ordinary and necessary to be deductible on a tax return. Categorization of expenses helps you to assess the tax by the end of the year. A write-off does not apply to all the expenses, and few categories allow partial tax breaks.

Can I Write-off My Business Start-up Costs?

Businesses can write-off their start-up costs in some conditions. It depends on the size and expenditure of the business. IRS allows tax deduction in the expenses of the legal process, training, and research work.

What Are The Three Major Types Of Expenses?

There are three types of expenses:

  • Fixed expenses
  • Variable expenses
  • Periodic expenses

Fixed Expenses:

These expenses do not change over a long period. Such as the expenses of office rent and vehicle rent for you and your staff.

Variable Expenses:

These expenses keep on fluctuating from month to month. Such as the expenses of office meals and entertainment.

Periodic Expenses:

These are unplanned expenses like car repair or emergency trips etc.

If you are looking for more helpful resources and guidance, then check out our resource hub.

Related Articles: