Business Expense Definition: Guide on What is Considered as Business Expense

All companies incur expenses to conduct business and generate revenue. As a company grows, expenses accumulate rapidly and managing them becomes increasingly difficult. What are the legitimate expenses? How to identify and classify expenses? How to manage your expenses in an efficient way? In this article, we show you that a meticulous follow-up of your expenses allows you to respect your budgets and avoid waste.

What is a Business Expense?

Expenses are costs that a company incurs for the needs of its activity. As soon as the company is created, expenses can be incurred by the entrepreneur. There are two categories of business expenses, namely capital expenses and operating expenses. Capital expenditures are expenditures to purchase expensive assets that will improve the productivity of the business. This may include new production machinery, buildings, etc. Capital expenditures are amortized over several years depending on their nature through an accounting process known as depreciation. Operating expenses represent current expenses. These may include rent, office equipment, travel expenses, advertising, legal fees, etc. Operating expenses are recorded as expenses and are tax-deductible.

What are the different types of business expenses?

There are three different types of business expenses, namely fixed, variable, and periodic. Fixed are expenses that have permanent value or may change vaguely, hence the term fixed. Mortgage, rent, taxes, and insurance are a few examples of fixed expenses. Variables are the largest expense a company can have. The value can change from month to month, meaning it is the opposite of fixed expenses. These may include gas, parking, maintenance, and repairs. Periodic expenses are expenses that rarely occur and are only paid annually or quarterly. Examples of these expenses include insurance, travel, and business registration.

What can you disregard as a business expense?

Anything that is related to personal expenses cannot be deemed a business expense. Everything outside the business hours or that has nothing to do with the business cannot be considered expenses of the business or company. Often times, personal expenses may be mixed up with business expenses. It is because employees use their own cars on their way to work, but they cannot deduct the expenses they made like car fuel for their business expenses. In addition to this, anything that has been used for family purposes as well cannot be considered an expense of the business. It includes travel expenses that the family has spent during their vacation, such as accommodation, transportation, and food.

What are examples of business expenses?

There are different business expenses that a company must know before running their business. The company must know these expenses and their categorizations to know where most of the money in the business goes to. It means, the company must know what they are spending their money for and what aspect of the business they need the money the most.

Listed below are examples of business expenses.

1. Furniture: Furniture is equipment that a business needs to run its business, especially those companies that have their own office.

2. Insurance: Insurance is the expenses that are paid by the company to receive monthly benefits.

3. Rent: Rent is the expenses of the business that are paid because they do not own the property.

4. Travel: Travel expenses are the expenses of the company that are related to any business activities.

5. Software: Some companies use different kinds of software to run their business. The software needs to be paid for in order to be legally used by the company.

6. Meals: Meals or foods are business expenses if it were taken during business-related activities.

7. Supplies: Supplies are the materials the company provides to its employees.

8. Equipment Rentals: Equipment can be rented if the company cannot afford to buy one. They are counted as external expenses and are deductible.

9. Utilities: Utilities are expenses of the business that are essential as well for the company to run its business.

10. Office Equipment: Office equipment is those that were bought by the company. It is different from rented equipment as it was directly bought fully by the company. However, it is still a business expense since it is needed for business-related activities.

11. Advertising: To make the company and business known, they market it through advertising. Advertising is a business-related activity that is deducted by the company.

12. Subscriptions: Subscriptions are fixed expenses of the company that they pay either monthly or annually.

13. Company Car: The car can be used for business purposes. If the car is used for both personal and business activities, the only time that the cost can be deducted is the time that it was used for business.

14. Legal Fees: Legal fees are the payment the company pays its lawyer.

15. Maintenance and Repair: Maintenance and repair are expenses of the company that are allotted for improving the company and its assets.

16. Employee Benefit Program: Employee Benefit Program is is a business expense because the people who benefit from these programs are the employees who are related to the business.

17. Employee Retirement Plan: Other than the employee benefit programs, there are retirement plans that employees can get once they reach a certain age wherein they can retire.

18. Commissions and Fees: Commissions & fees are the payments paid to the people who sell the company’s products and services and are successful in it.

19. Bank Fees and Interest: Bank fees and interest are the expenses of the company that they need to pay because of their loans.

20. Employee Education Plan: The educational training is fully paid for by the employer using its company’s money; thus, it is a business expense.

21. Membership Dues: Membership dues are fees that are paid by the company in exchange for the program or participatory rights offered by an organization.

22. Payroll: Payroll, sometimes called salaries and wages, are the expenses of the company that needs to give to their employees.

1. Furniture

Furniture is equipment that a business needs to run its business, especially those companies that have their own office. Furniture Business Examples include chairs, tables, cabinets, appliances, and other movable furnishings. It is considered a long-term fixed asset of the company. They are counted as a business expense as it is used for any business-related activity and is essential to keep the business running. Additionally, it is an essential part of running a business, that is why it is considered a business expense. Even if the office or business is at the home of the owner, the furniture can be listed as a business expense as long as it is used for business-related activities. Based on the tax code, businesses are given the opportunity to deduct the full value of the furniture for up to $1,000,000 USD, which is considered a Furniture business tax deduction.

2. Insurance

Insurance is the expenses that are paid by the company to receive monthly benefits. When an employee gets caught up in an accident or has an illness, the insurance may cover the expenses that were made. The insurance of business is essential in protecting the company from unforeseen loss of profit or money. With insurance, the company will be protected from damage to properties, legal liabilities, and risks that are related to the employees of the company. It is considered a business expense because its main purpose is to protect the company and the business. Insurance Business Expense Examples include medical, workers' compensation, and cyber liability.

3. Rent

Rent is the expenses of the business that are paid because they do not own the property. Rent Business Expense Examples include retail spaces, offices, storage, or a factory. Typically, it happens for small business owners that rent their place to run their business. It is a fixed expense that is considered a business expense because it is essential for the business to function properly. It can be one of the biggest expenses the company can encounter. Rental business fees may vary depending on what type of space is being rented by the company.

4. Travel

Travel expenses are the expenses of the company that are related to any business activities. Travel expenses are one of the most common business expenses of a company and have to be always related to business. Personal travel trips will never be considered business trips, except if the travel is related to pursuing another existing business. Travel Business Expense Examples include transportation, accommodation, and food that was taken during the travel. Therefore, a travel business tax deduction is at 100% as long as it is a business trip. In addition to that, travel business fees will depend on where the business trip is being held and other amenities the employee may encounter.

5. Software

Some companies use different kinds of software to run their business. The software needs to be paid for in order to be legally used by the company. Software business fees will depend on what software the company will use. And this software always differs in price. Software Business Expense Examples include accounts, billing, payroll, asset management, and database software. Accounts software is responsible for keeping track of the financial transactions of a company. Billing software is used to record all the products and services that the customers of the company have bought. Payroll software is used to give the employees the exact amount of salary at the right time. These are essential for the company so that the business will be more organized.

6. Meals

Meals or foods are business expenses if it were taken during business-related activities. Meals business fees will depend on what kind of meals will be consumed. However, the meals should not be luxurious, and a valid business purpose must be associated with them. There are two different types of meal expenses based on what percentage is being deducted. 100% is the meals tax deduction of the meals that are taken during a company party or vacation will be deducted. Meaning that the whole amount of money that was spent will be reimbursed by the company. In addition to that, office snacks that are available in the company will not be compensated fully as well. On the other hand, meals that are taken during business or partner meetings, business seminars, business trips, and meals with clients will be reimbursed, not be fully reimbursed by the company.

7. Supplies

Supplies are the materials the company provides to its employees. They are bought yearly as it is meant to be used up within the year it was purchased. Supplies Businesss Expense Examples include materials such as pens, papers, staplers, and packaging. They can be considered as the Cost of Goods Sold by the company if it is part of the process of producing the products. These kinds of expenses are considered business expenses because it is related to business activity that is essential for the business to function properly. Supplies business fees will depend on what kind of supplies are needed by the company, and the company will render a 100% supplies tax deduction.

8. Equipment rentals

Equipment can be rented if the company cannot afford to buy one. They are counted as external expenses and are deductible. Just like rent, it is part of the business expenses because it is required for the business to operate. It includes machines, furniture, computers, and other electronic devices. They are essential for the business to work, since some companies need equipment for it to manufacture their products. But take note that rentals are only deductible if they are going to be used for the business. Any equipment that will be used for personal gain or activities will not be considered a business expense. Since there are different kinds of equipment that can be rented, equipment rentals business fees will be based on what kind of equipment the company will rent.

9. Utilities

Utilities are expenses of the business that are essential as well for the company to run its business. Utilities Business Expense Examples are water, electricity, and gas that is being used in the company’s building for it to produce its goods and services. Every company has its own bathroom that supplies water for its employees for them to use. Its main purpose is to provide sanitation and cleanliness for the company and its employees. Electricity is another essential utility that a company needs for it to function, especially those companies that have machines and electronic devices. Utilities business fees are always the same or may only slightly change from time to time.

10. Office equipment

Office equipment is those that were bought by the company. It is different from rented equipment as it was directly bought fully by the company. However, it is still a business expense since it is needed for business-related activities. Office Equipment Business Expense Examples are electronic devices such as computers and machines that the company needs in order to produce their services and products and run their business. Office equipment business fees, just like the equipment rental, are based on what kind of equipment the company needs. The only difference is that it may be higher than the rentals, as the equipment is being bought fully by the company. Any office supplies or equipment will be deducted 100% from the revenue, thus making this the office equipment tax deduction.

11. Advertising

To make the company and business known, they market it through advertising. Advertising is a business-related activity that is deducted by the company. Advertising Business Expense Examples are marketing through new and old media such as newspapers, television, and social media platforms. Additionally, advertisements through promotional and marketing materials such as pens, business cards, and brochures are included as well.

12. Subscriptions

Subscriptions are fixed expenses of the company that they pay either monthly or annually. Just like software, there are things that the company must pay for in order to get the benefits. Subscriptions Business Expense Examples include software, cellular networks, and internet plans. Software, as mentioned earlier, is essential to keep the business organized. There are different software that offers subscription plans to the users that give different benefits based on what plans they may wish to avail of. Employees can be given a business phone as well, in which the cellular plan must be part of the business expenses as well. Moreover, the company, most of the time, provides internet subscriptions to their employees. Therefore, it is part of the business expenses that may be deducted.

13. Company car

Company cars are the vehicles used by employees that are owned by the company. The car can be used for business purposes. It is only applicable if the company will use the vehicle more than 50% of the time for business-related activities. If the car is used for both personal and business activities, the only time that the cost can be deducted is the time that it was used for business.

14. Legal fees

Legal fees are the payment the company pays its lawyer. Legal fees Business Expense Examples include consultation, contingency, flat, hourly rate, referral, retainer, and statutory fees. The consultation fee is the payment given to the lawyer during the first meeting to identify what steps need to be taken. A contingency fee is a payment that the lawyer receives when the client has won the case. These are business fees or expenses if, and only if, the case is related to the business. For example, the business has been summoned to court because of a report by another person or company. However, if the case is a personal case of an employee that is not related to the business, it will not be considered a business expense.

15. Maintenance and repair

Maintenance and repair are expenses of the company that are allotted for improving the company and its assets. It restores the company’s equipment and machinery that are used by the employees of the company. Maintenance and repairs are needed to ensure that the equipment is good enough to keep the business running for a long time. It is not necessary for the equipment to be always new; however, it is essential for them to be properly functioning for the company to provide their goods and services.

16. Employee benefit programs

Employees of a company have benefits that they gain from their company. Employee benefit programs Business Expense Examples include medical, insurance, assistance, vacation, and sick leave. Employees can be reimbursed by the companies if they spend money on such expenses. Other than the salaries of the employees, the benefits are compensation they get from the company in addition to these salaries. Some companies even provide exercise equipment on their buildings for employees to use freely. This is a business expense because the people who benefit from these programs are the employees who are related to the business.

17. Employee retirement plans

Other than the employee benefit programs, there are retirement plans that employees can get once they reach a certain age wherein they can retire. Retirement is an action wherein an individual leaves the working environment permanently. Typically, people can retire when they reach the age of 60. The company provides retirement benefits for their employees who have already retired. One of the common retirement plans is called an Individual Retirement Account or IRA, which is created in a financial organization that provides an individual the opportunity to save for their retirement.

18. Commissions & fees

Commissions & fees are the payments paid to the people who sell the company’s products and services and are successful in it. Additionally, these fees are given to those who facilitate and supervise the sale. Moreover, if the company has consulted a financial adviser, they are given a commission as well. It is considered a business expense because the services that are being paid for are used for business purposes only.

19. Bank fees and interest

Bank fees and interest are the expenses of the company that they need to pay because of their loans. A company can request of money loan from a bank when they need it. These loans come with interest, which is the fee that the bank receives from letting people borrow their money. Bank fees are considered a business expense, as the money being borrowed is used for the business and anything related to it.

20. Employee education plans

Employee education plans are beneficial to make sure that the employees are competent enough to work for the company. The company can provide educational training to enhance their employees’ skills and knowledge. Obviously, education must be related to the nature of the business. The educational training is fully paid for by the employer using its company’s money, thus is a business expense. The purpose of the training is to improve the business as well by giving the employees the opportunity to improve professionally.

21. Membership dues (including union or other professional affiliations)

Membership dues are fees that are paid by the company in exchange for the program or participatory rights offered by an organization. Employees of a company can join an organization and the fees are paid by the company only if the purpose is business-related. Membership dues Business Expense Examples are trade, professional, and public service organizations. Leisure clubs such as athletic, country, and sports clubs are those that are not considered a business expense as they are not related to the business.

22. Payroll (employees and freelance help)

Payroll, sometimes called salaries and wages, are the expenses of the company that needs to give to their employees. These can be given to employees weekly, biweekly, semi-monthly, or monthly. The working hours of the employees must be tracked by the company in order to know if the employee met the hours required to work and if they have to be paid for their overtime. Any absences must be deducted before giving the salary, unless stated as a paid leave or absence. Some companies have a fixed salary for the whole month; others are based on the hourly rate. Taxes are another deduction from the salary of employees.

What is the best business expense tracker app?

The best business expense tracking application is Trezorino. Trezorino is a cash management software that allows you to manage, anticipate and act quickly on your company's finances. Trezorino allows you to automatically synchronize with your business bank accounts and thus obtain all disbursements and receipts in real time. The intuitive categorization saves time and automatically classifies your bank transactions for better visibility of your finances. Defining your expenditure forecasts becomes child's play and allows you to make the right decisions at the right time, to avoid a cash shortage and to ensure the sustainability of your business.

Is it hard to track business expenses?

Yes, it can be hard to track expenses because they can get mixed up with each other. Most of the time, the business fails because of poor management of the business expenses. There are certain tips to follow in order to track the business expenses of the company and avoid losing money. First, know the expenses that are considered business expenses. Just as mentioned earlier, there are expenses that should not be counted as business expenses and must not be deducted as one. Separate these different kinds of expenses from one another by creating different bank accounts for each of them. Second, paper receipts are needed to be kept for audit purposes. Receipts can be kept digitally using tracking software like Trezorino. Thanks to Trezorino classify what kind of business expenses they are. By doing so, expenses will be more organized as they will be labeled.

Why is business expense tracking important?

Business expense tracking is important because its main purpose is to track the money that is going in and out of the business. The expense tracking can help the company organize its cash flow and optimize its tax deductions. In tracking the cash flow of the company, the organization will know if the business is losing or gaining money. It can track how much money the company is earning and spending. In that way, the company can control the cost of the business. Furthermore, by organizing the receipts, the tax can be handled properly.

What is Cash Flow Analysis with Business Expenses?

Cash Flow is the total amount of money that goes in and out of the company. It includes all the money from operating, investing, and financing activities. Cash Flow Analysis is the process of determining the business’ working capital. Working capital is the total number of cash that is accessible to use by the company to run its business. Cash flow will determine whether the company will be able to pay all its business expenses and may foresee if the business will lose or gain money.

What is a good expense ratio for a business?

A good expense ratio is around 0.5% to 0.75%. An expense ratio greater than 1.5% is considered a high expense ratio. These ratios are the total number of money that the investment company rates investors in managing an investment portfolio.

Can business expenses be carried over?

Yes, business expenses can be carried over. Carrying over in accounting means that the balance from the previous accounting period will be transferred to the next. The Internal Revenue Service stated that previous expenses even before the start of the business can be considered capital expenses and carried over.

Can a personal expense be considered a business expense?

No, personal expenses cannot be considered business expenses because they are called “personal” for a reason. Personal experience cannot be deducted from the business; thus personal expenses cannot come from the income of the business.

Are all business expenses tax-deductible?

Yes, all business expenses are tax-deductible. Anything that is not related to business cannot be considered a business expense. Thus, they are not tax-deductible. All expenses that the company needs for business-related activities are tax-deductible, as they are essential for the company to continue running its business.

What is the difference between business cost and business expense?

Cost is the value of the products, operations, or services. It is the amount of money customers pay for products. On the other hand, expenses are fixed monthly expenses of a company or individual. Cost is more likely to be a one-time payment and may differ vastly in value. However, expenses are an ongoing payment that is paid by the company from time to time. The value of the expenses, most of the time, only slightly changes or does not change at all.

What is the difference between non-deductible expenses to deductible expenses?

Non-deductible expenses are not deducted from the company’s income, while deductible expenses are those that can be deducted from the income of the business. These expenses will solely depend on the rules of the company and whether they will deduct them or not. The company can have these expenses as fully deductible, partially deductible, or not deductible.