35 business expense categories that are tax-deductible

Organizing your expenses into business expense categories, and setting up automatic expense management software to keep track of them, ensures you’ll be fully prepared come tax season—or in the event of an audit. Some of the common types of business expenses include:

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1. Payroll and employee benefits
2. General and administrative
3. Marketing and advertising
4. Research and development (R&D)
5. Professional services

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In this article, we’ll break down the process of business expense categorization, and list 35 specific types of expenses, so you can start applying it to your own accounting practices. Plus, we’ll share some helpful tools to automate it. First, though, here’s a deeper explanation of what we mean when we talk about business expense categorization.

What is business expense categorization?

Expense categorization is the process of grouping expenses for financial control and tax purposes. For example, if your company paid for airfare for a business trip, you may categorize that as a “travel” expense. And, because it is categorized as such, specific transaction details and documentation would then be required for you to write it off come tax time.

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Trying to go back and categorize your expenses at the end of the year is a sure way to lose valuable time and money. Instead, it’s best to categorize and map your expenses in advance. You’ll make it easier to do reporting and save the maximum amount in business tax deductions.

How do you categorize business expenses?

Business expenses can be categorized into various buckets, including payroll, employee benefits, general and administrative (G&A) expenses, marketing and advertising, research and development, and payments for professional services.

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The key is to set up categorization that reflects your internal company structure, i.e., by department and spend management needs. Just make sure to include enough detail and documentation to easily pull reports that satisfy IRS compliance.

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For example, you can classify expenses by type, like "General and Admin" and "Research and Development," and then sort them by department, like "Marketing" and "Engineering". So when an engineer in the company buys software for building new products, you’d categorize the expense as an R&D expense attributed the engineering department.

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It’s worth noting that you’ll likely need more granular categories for internal P&L statements than you will for IRS categorization. To make your life easier, those more granular categories should each fit into one of the IRS categories.

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There’s no need to overcomplicate classifying different types of expenses. Keep categories general and limit the number of general ledger (GL) accounts you have. Use custom fields to capture the who, what, where, and why of each transaction so you can easily sort or reclassify them for different reports as needed.

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For example, for internal purposes, you may only need to know that an employee made a meal purchase. But if you want to deduct the expense as a business meal come tax time, you’ll need to know if the employee ate alone, with a team, or with a client, and what was discussed.

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You may not need an entire category for each of these details, but defining transaction details in your spend management platform can make reporting and increasing tax deductions much easier.

List of 35 common business expense categories

Not sure where to start with creating business expense categories? We’ve listed 35 common business expense categories here for reference. Of course, you’ll want to tailor these to your own company’s structure and business operations:

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1. Employee benefits

Your company's payments toward employee benefits like health insurance, retirement plans, workers’ compensation, and home office expenses are tax-deductible.

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2. General and administrative (G&A) expenses

This category includes office supplies like computers, pens, and paper; cleaning services for your office space; meal stipends; and other miscellaneous office expenses. Website hosting and domain payments may fall into this category as well.

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3. Rent and leases

Any payments you make toward renting office space, equipment, a warehouse, or vehicles are deductible.

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4. Marketing and advertising

Anything that covers the cost of directly promoting or marketing your business is deductible. Think marketing websites, social media ads, billboards, marketing consultants, contracted marketing services, and even business cards.

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5. Employee training

Skills training for employees is fully tax-deductible as long as the training is for job-related skills your business requires.

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6. Research and development (R&D)

These are costs related to developing and improving your products, including expenses for software directly necessary for developing your product or product testing equipment.

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7. Legal and professional services

This category includes payments to agencies or contractors. For example, the money you spend on PR agencies, headhunters, freelance designers, CPA services, and legal fees are all tax-deductible.

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8. Utilities

Utilities such as electricity, water, gas, and sewage for commercial space are fully deductible. If you work from a home office, you can deduct a portion of utilities relative to how much of your home you use for business purposes.

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9. Salaries and wages

This category includes all payments to employees, including salaries, wages, bonuses, and commissions, all of which are tax-deductible.

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10. Insurance

You can deduct your business insurance premiums, including general liability, malpractice, and property insurance.

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11. Travel

Lodging, airfare, travel insurance, and other costs related to business travel are fully deductible. However, note that you can only deduct 50% of the cost of meals, even while traveling.

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12. Depreciation

Expenses related to the depreciation of business assets, such as equipment, vehicles, and buildings, are all tax-deductible.

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13. Maintenance and repairs

Any costs you incur to maintain and repair necessary business equipment, vehicles, and facilities are deductible.

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14. Taxes and licenses

Business taxes, permits, and licenses required to operate legally are deductible. Examples include construction permits or licenses to practice law or medicine in your state.

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15. Continuing education

Expenses related to ongoing education programs like seminars, workshops, and conferences are tax-deductible. Educational materials like books fall into this category as well.

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16. Software

Business software is usually fully tax-deductible. This includes subscription costs or the outright cost to own the software, including accounting or project management tools.

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17. Interest

Interest payments on business loans, business credit cards, lines of credit, debt, or mortgages are tax-deductible in most cases.

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18. Dues and subscriptions

Paid subscriptions for industry magazines or academic journals related to your business are deductible, as well as dues or membership fees for trade associations.

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19. Shipping and postage

Postage or freight costs you incur to ship your products are tax-deductible, as are stamps or postage for sending business-related mail. However, envelopes and packing materials would generally go in the G&A category.

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20. Charitable contributions

You can deduct donations you make to charitable organizations, provided they meet the most current IRS requirements.

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21. Business use of vehicles

Fuel, maintenance, and insurance costs for business vehicles are all deductible, provided you use the vehicle exclusively for business purposes.

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22. Employee meals and entertainment

You can deduct up to 50% of the cost of meals and entertainment expenses directly related to business activities. This applies to employee meals while traveling and meals with prospective clients or customers.

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23. Collection fees

You can generally deduct any costs related to trying to collect on a debt, such as hiring a third party to collect what’s owed.

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24. Printing

This category can include ink cartridges, physical printers, or payments for printing services—for example, for direct-mail marketing campaigns.

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25. Startup expenses

You may be able to deduct a limited portion of the costs associated with starting a new business. These costs might include market research, employee training, or business development expenses.

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26. Moving expenses

If you move more than 50 miles from your previous location for work-related purposes, you can deduct 100% of your moving costs.

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27. Security

You can deduct expenses related to security systems and personnel for your business.

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28. Equipment maintenance contracts

If you have active contracts for the maintenance of business equipment, you can deduct these costs from your taxes.

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29. Inventory

This category includes the cost of goods sold (COGS), including raw materials, finished products, and inventory management expenses.

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30. Employee transportation benefits

If you provide transportation benefits to employees, you can deduct these expenses come tax time.

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31. Pension contributions

Any contribution to employee pension plans would be a deductible expense.

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32. Employee assistance programs

Programs to support employees’ well-being in the workplace or their personal lives are deductible on your business taxes.

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33. Gifts

Business-related gifts to clients, employees, or vendors are tax-deductible so long as the purpose of the gift is to promote business relations.

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34. Bank fees

Expenses related to banking, including monthly service fees for your business checking account, are tax-deductible.

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35. Telecommunications

The cost of business phone and internet services is deductible when you do your taxes.

How to maximize tax deductions for business expenses

To optimize your expense categories for business tax deductions, it’s important first to understand what’s deductible and what documentation is needed for compliance when claiming expenses on your tax return and filing taxes.

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The IRS’s general rule of thumb is that an expenditure is deductible if you can prove it to be “ordinary and necessary” for business purposes. For example, you can usually count a business lunch with a prospective client as ordinary, and even necessary, to cultivating business. However, a personal pizza you ordered over the weekend may not be so necessary or ordinary to your business growth and can't be considered a write-off.

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What counts as a deductible expense will depend on your particular business structure and how you file. For example, the IRS has a list of the major expense categories that are deductible for small businesses specifically. Much of this information was previously consolidated in IRS Publication 535, which has been discontinued as of February 2023.

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Each category has precise requirements for deduction and is subject to change at the discretion of the IRS. So it’s a good idea to subscribe to IRS e-News alerts, review the most recent IRS resources and publications for your business type, and work closely with a tax advisor to maximize deductions.

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Taking the time at the start of each tax year to optimize your expense categories and map to ledgers based on IRS changes will make your tax season significantly smoother. Recognizing non-deductible business expenses can go a long way here, too.

How to make sure your business expense categories are correct

So you’ve determined categories that align with your internal finance needs and IRS compliance, but you’re still faced with actually enforcing categorization. Manually processing expenses has proven unreliable and time-consuming. How do you ensure expenses are consistently and correctly categorized?

Use expense management software

Startup and small business expense management software automates expense mapping and categorization with customizable fields, prompts for required documentation, and integrates with bookkeeping software.

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Centralizing all your expenses in a platform that handles every expense process provides a clear audit trail and easy reporting. With every transaction in one platform, it’s easy to pull a report for a single expense category across all departments and general ledgers and then sync with bookkeeping and tax-filing software.

Automate workflows

Expense management software that's built into modern business expense cards adds another layer of data control by providing customized card rules that inform every step of the transaction.

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Custom no-code workflows provide consistent expense documentation by prompting employees throughout the transaction process. At each transaction, employees are immediately prompted via SMS or email to submit documentation.

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Once documentation is submitted, automated receipt matching ties it to the corresponding expense and prompts the employee to complete a memo. The expense management software then uses automation and AI to categorize the expense and sync the information with your accounting software.

Get back your time and money during tax season with Ramp

Tax season doesn’t have to be stressful. Saving time and money shouldn’t be complicated, even if you’re a small business owner or startup founder without a big finance department.

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With Ramp’s powerful finance automation and AI behind your business expense categorization, tax season is just another day at the office. Learn more about how we’re saving our customers an average of 5% a year using our software.