What expense category are utilities?

Struggling to figure out where utilities fit into your business expenses? Knowing how to categorize costs like electricity, water, and internet can simplify your accounting and give you clearer financial insights.

Classifying utilities expenses

Utilities expenses are generally classified as operating expenses because they're essential for your day-to-day business operations. Here's how you might categorize them:

• Operating expenses: Regular costs like electricity, water, gas, and internet that are necessary for running your business.
• Administrative expenses: Utilities used for administrative functions, such as office lighting and heating.
• Manufacturing overhead: If you're in manufacturing, utilities used in production processes can be included here and factored into the cost of goods sold (COGS).
• Selling expenses: Utilities related to sales activities, like electricity for a retail store or showroom.

Examples of utilities

Knowing the common utilities expenses can help you categorize and manage them more effectively:

• Electricity bills: Covering the cost of powering lights, computers, machinery, and other equipment needed for operations.
• Water and sewage charges: Paying for water usage in restrooms, kitchens, or in production processes, along with sewage services.
• Gas expenses: Costs for heating your premises or fueling equipment if your operations require it.
• Internet and telephone services: Ensuring your business stays connected with customers and suppliers.
• Waste disposal fees: The expense of regular trash collection or disposal of hazardous materials.

For instance, if your company pays $200 per month for internet service to support online operations, this is a utilities expense.

Tax implications of utilities

Understanding the tax implications of utilities expenses can help you maximize deductions and stay compliant with tax laws.

• Deductible expenses: Utilities like electricity, water, gas, internet, and telephone used for business are generally tax-deductible.
• Home office utilities: If you operate your business from a home office, you can deduct a portion of your home utilities related to the business use.

Keep detailed records and receipts of all utility expenses to substantiate your deductions. Properly allocate utilities between personal and business use if applicable, to ensure only business-related costs are deducted. Under the accrual accounting method, utilities expenses are deducted when incurred, not necessarily when paid.

Let Ramp automate your expense process

Managing and tracking utilities expenses can be time-consuming. With Ramp, you can automate the categorization and tracking of your utilities and other business expenses. Ramp's expense management platform simplifies your accounting processes, giving you real-time insights and helping you stay on top of your finances effortlessly.