What expense category are background checks?

When you're running a business, categorizing expenses correctly helps you keep your financial records accurate. If you've ever wondered where background check expenses fit in your books, we will help you understand.

Classifying background check expenses

Background checks are a standard part of the hiring process and are typically recorded based on how a company structures its hiring and HR costs. Common categories include:

• Professional services or professional fees: Fees paid to third-party background check providers.
• Employee recruitment or hiring expenses: Costs directly related to screening and onboarding new employees.
• Human resources expenses: Background checks grouped with broader HR costs such as training, compliance, and employee relations.
• General or administrative expenses: Used when background check costs are treated as part of overall business overhead.

Examples of background check expenses

Understanding the types of background check expenses can help you categorize them properly. Here are some common examples:

• Criminal record checks: Fees paid to agencies for criminal history reports.
• Credit history checks: Costs for obtaining credit reports when relevant to the job role.
• Employment verification: Expenses incurred verifying a candidate's past employment.
• Education verification: Costs associated with confirming academic credentials.
• Drug testing: Fees for pre-employment drug screening.

For instance, if your company spends $50 on a criminal background check for a new hire, this expense would be recorded under employee recruitment expenses.

Tax implications of background check expenses

When it comes to taxes, background check expenses are generally considered ordinary and necessary business expenses. This means they are typically tax-deductible. Keep these points in mind:

• Deductible expenses: Background check costs can usually be deducted as part of your business expenses.
• Proper documentation: Maintain receipts and records of all background check fees.
• Accurate categorization: Ensure these expenses are recorded correctly to simplify tax preparation.
• Consult a professional: Tax laws can vary, so it's wise to consult with a tax advisor to understand specific implications for your business.

Recording these costs accurately can help you maximize your deductions and stay compliant with tax regulations.

Let Ramp automate your expense process

Managing expenses like background checks doesn't have to be a hassle. Ramp can automate the categorization, tracking, and management of these costs, making your expense process seamless. With Ramp, you save time and gain clearer insights into your spending, so you can focus on growing your business.