Common Expense Categories

Although you can call your expense groupings anything you want, it makes sense to use some of the standard categories. When it comes time to prepare the tax return, you will have to fit your expenses into these categories anyway.

Here are some of the common expense groupings:

Advertising and promotion: Includes expenses for newspaper ads, telephone directory ads, raffle prizes, and anything else done for publicity. Some businesses also include expenses for their business cards and letterhead here.

Amortization and depreciation: Includes expense for the current year for both capital assets and other assets (such as incorporation costs).

Bad debts: See previous session for a discussion of bad debts.

Business taxes, fees, licenses: Includes expenses for any licenses you may require to do business in your municipality and any special commercial taxes.

Equipment repairs: Includes expenses for any work that needs to be done on the shop machinery or computer and office equipment.

Home office expenses: This category is discussed in more depth in later.

Interest expense: Includes interest charged on overdrafts, bank loans, or mortgages on property in which the company operates.

Meals and entertainment: Includes expenses for those events to which you take customers (or potential customers) or suppliers. These expenses must be separated out from other expenses because in most jurisdictions, this category receives special tax treatment.

Office services: Includes fees paid to any person or company you hire to provide services for the office, such as bookkeeping and other contract work.

Office supplies: Includes pens, paper, note pads, coffee, and other small supplies.

Professional fees: Includes accounting and legal fees. If you pay for outside bookkeeping services, that expense falls into office services.

Property taxes: Includes tax costs if you own the building in which your business operates.

Repairs and maintenance: Includes all repairs except equipment repairs. Examples would be painting offices, landscape supplies, and refinishing a desk.

Rent: If you are renting your business premises.

Shop supplies (manufacturers only): Includes the dozens of small items that you must buy for the plant that are not directly related to the items you manufacture (e.g., oil for the machinery, paper towels, staples for an electric stapler, etc.).

Telephone expense: This category is self-explanatory, but you would most likely include all telephone-related expenses here: phone lines, fax lines, cell phone charges, Internet charges, pager charges. Remember that if the charge for your phone book ad appears on your phone bill, you should separate it out into the advertising and promotion category.

Travel: Includes hotel, car rental, and other costs of business trips. The meals expense would go into the meals and entertainment category.

Utilities: Includes electricity, heat, or water in your business premises, if you are required to pay for these things.

Vehicle expenses: Includes, if your company owns the vehicle, fuel, vehicle repairs and maintenance, license fee, lease costs or the interest on any financing loan, insurance, and other costs to maintain the vehicle. (If you personally own the vehicle and are using it partly for business purposes, it requires special treatment.)

Wages and benefits: Includes the costs of maintaining your employees: gross wages, employer health tax, worker's compensation premiums, payroll taxes, and any other cost related to your employees. If you have subcontract labor, that cost should go into cost of goods sold (if it's directly related to the manufacturing process) or office expenses (if it's office-related labor). This split will make it easier for you to reconcile this account to your payroll records at the end of the year.