What expense category do sales commissions come under?

Trying to figure out where sales commissions fit in your financial statements? You're not alone. Classifying sales commissions correctly helps you understand your expenses and keeps your books accurate.

Classifying sales commission expenses

Sales commissions are usually categorized as operating expenses on your income statement. Here's how you can classify them:

• Selling expenses under SG&A: Sales commissions often fall under selling, general, and administrative expenses (SG&A). They're costs associated with selling your products or services.
• Not part of COGS: Unlike the cost of goods sold (COGS), which includes direct costs to produce your goods or services, sales commissions are considered indirect costs.

Examples of sales commission expenses

Sales commission expenses can take several forms in your business:

• Percentage-based commissions: Paying sales staff a percentage of each sale they make.
• Flat-rate commissions: Providing a fixed amount for each product or service sold.
• Performance bonuses: Rewarding employees when they meet or exceed sales targets.

For example, if a salesperson earns a 5% commission on each $1,000 sale, they'd receive $50 per sale.

Tax implications of sales commission expenses

When it comes to taxes, properly classifying sales commissions can make a difference. Keep in mind:

• Deductible expenses: Sales commissions are generally tax-deductible as ordinary business expenses.
• Accurate reporting: Ensure commissions are recorded under the correct category to avoid discrepancies in your financial statements.
• Compliance with standards: Following accounting guidelines helps you stay in line with tax laws and avoid potential issues.

Let Ramp automate your expense process

Managing sales commission expenses doesn't have to be complicated. With Ramp, you can automate the categorization, tracking, and management of these expenses. Ramp's platform simplifies your financial processes so you can focus on growing your business without worrying about manual errors or compliance issues.