35 essential business expense categories for businesses of all sizes

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Whether big or small, every company incurs expenses in the course of doing business. Common examples of business expenses include the cost of goods and services, everyday operating expenses like payroll and rent, and countless others.

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Organizing all your expenses into business expense categories ensures you know exactly how your business spends money. This helps plan budgets, control costs, and claim all your eligible business tax deductions on your income tax returns.

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In this article, we explain what qualifies as a deductible business expense, break down how to categorize business expenses, and list 35 common expense categories for businesses of any size. Plus, we’ll share some helpful best practices to stay organized by automating expense categorization.

What is a business expense?

Because business expenses are tax-deductible, it’s important to understand exactly how the Internal Revenue Service (IRS) defines them. According to the IRS, business expenses are ordinary and necessary costs you incur to run your business. Here’s what that means:

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1. Ordinary: Common expenses for businesses in your industry
2. Necessary: Expenses needed to operate your business, even if they aren’t indispensable

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Business expenses are sometimes called deductions because you subtract them from your revenue to determine your taxable income. As such, you record them on your business income statement.

What are the three types of expenses?

The three main types of expenses are direct costs, indirect costs, and depreciation expenses. And these can be further grouped into various expense categories, including payroll, employee benefits, general and administrative (G&A) expenses, marketing and advertising, research and development, and payments for professional services.

How do you categorize business expenses?

Small business owners often struggle with expense categorization, but there’s no need to overcomplicate the process. The key is to categorize business expenses in a way that reflects your business structure—that is, by department and spend management needs. 

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For example, you can classify expenses by type, like "G&A" and "Research and Development," and then sort them by department, like "Marketing" and "Engineering."

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Keep your expense 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 as needed.

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Say 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.

35 business expense categories to know

If you’re not sure where to start with creating business expense categories, we’ve done some of the legwork for you. Below are 35 common business expense categories for businesses of all sizes. Of course, you need to tailor these to your own company’s structure and business operations:

1. Employee benefits

Your company's payments toward employee benefits like health insurance, retirement plans, life insurance, and home office expenses.

2. General and administrative (G&A) expenses

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

3. Rent and leases

Any rent or lease payments you make toward renting office space, equipment, a warehouse, or vehicles.

4. Marketing and advertising

Anything that covers the cost of directly promoting or marketing your business.

5. Employee training

This category covers skills training for employees, provided the training is for job-related skills.

6. Research and development (R&D)

Costs related to developing and improving your products, including expenses for software directly necessary for developing and testing your product.

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, tax preparation, and legal fees.

8. Utilities

Utilities such as electricity, water, gas, and sewage for commercial space. 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.

9. Salaries and wages

This category includes all payments to employees, including salaries, wages, bonuses, and commissions.

10. Insurance

Business insurance premiums, including general liability, malpractice, and commercial real estate or property insurance, typically have their own dedicated expense category.

11. Travel expenses

Lodging, airfare, travel insurance, and other costs related to business travel go in this category. These expenses are typically fully deductible, but note that you can only deduct 50% of the cost of meals, even while traveling.

12. Depreciation

Expenses related to the depreciation of business assets, such as equipment, vehicles, and buildings.

13. Maintenance and repairs

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

14. Taxes and licenses

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

15. Continuing education

Educational expenses for seminars, workshops, and conferences that promote ongoing education. Educational materials like books fall into this category as well.

16. Software

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

17. Interest

Interest payments on business loans, business credit cards, lines of credit, debt, or mortgages.

18. Dues and subscriptions

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

19. Shipping and postage

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

20. Charitable contributions

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

21. Business use of vehicles

Fuel, maintenance, insurance, and other car expenses are all business expenses, provided you use the vehicle exclusively for business purposes. You can also deduct the IRS standard mileage rate.

22. Employee meals and entertainment

This is a common business expense category, but note that you can only deduct up to 50% of the cost of business meals and entertainment expenses.

23. Collection fees

This category covers any costs related to hiring a third party to collect on a bad debt expense.

24. Printing

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

25. Startup costs

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

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.

27. Security

Expenses related to security systems and personnel for your business.

28. Equipment maintenance contracts

Active contracts for the maintenance of business equipment.

29. Inventory

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

30. Employee transportation benefits

If you provide transportation benefits to employees, you can deduct this expense category come tax time.

31. Pension contributions

Any contributions to employee pension plans go in their own business expense category.

32. Employee assistance programs

Programs to support employees’ well-being in the workplace or their personal lives.

33. Gifts

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

34. Bank fees

Expenses related to banking, including monthly service fees for your business bank account.

35. Telecommunications

The cost of business phone and internet services.

Best practices for categorizing and tracking expenses

Now that you know what the categories are, how do you apply this to your business? Here are four best practices for effectively getting organized so you can categorize and track your expenses properly.

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1. Understand the categories that meet your business needs: Which of the 35 above apply to the specifics of your work, and which, perhaps needs to be added or amended?
2. Review your accounts often: You need to review your account statements, expense reports, and invoices on some regular cadence. That way you’ll know both whether your categories are effective and how you’re tracking against your budget goals.
3. Let automated tools do the heavy lifting: Expense management software helps automate expense mapping and categorization. Software that integrates with modern business expense cards adds another layer of control by providing customizable rules for every business expense.
4. ‍Be sure to assign categories to every transaction: Your new system only works if you implement it. When tracking your business expenses, make sure every single transaction is assigned a category so you have a handle on what’s what.

Simplify business expense categorization with Ramp

Ramp's expense management platform offers a solution to the pitfalls of manually categorizing business expenses. 

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Custom reporting workflows guarantee consistent documentation by prompting employees throughout the transaction process. Automated receipt matching connects with the corresponding expense. And then the expense is automatically categorized and synced with your bookkeeping or accounting software.

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Ramp automates the entire business expense tracking, reporting, and categorization process, reducing errors and saving you time and money.

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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 Ramp customers save an average of 5% a year using our software.