If you are just commencing your business or if you are looking to expand soon, you need to track your business expenses. Tracking business expenses will help you minimize your taxable income, but it will also help you control your business.
- Business expenses cover both the cost of goods sold, as well as the normal and necessary operational expenses associated with running the business.
- There are costs associated which include rent, salaries, business licenses, and permits, and self-employment
- Separating your business finances from your finances helps you more effectively track your business expenses.
Categories of Business Expenses:
It helps to analyze your business expenses. This can tell how you prioritize them in budgeting, and it’s easier to spot areas where you can easily costs if you need to.
- Fixed: Fixed expenses are things that do not vary from month to month. These are items like mortgages, depreciation, insurance, salaries, and rent. While many of these expenses can change over time, they are usually fixed for the duration of a lease, agreement, or contract.
- Variable: Variable expenses are the opposite of fixed expenses. They are necessary spending, but their total cost will vary with each billing cycle. Utilities often fall into this category. Inventory, commissions, and credit card fees are common examples of variable expenses.
- Period: Period expenses can be fixed or variable, and they come at regular intervals. Examples of fixed period costs would be the mortgage, while variable period expenses would include utilities and insurance.
- Interest: Interest can be fixed or variable. Many interest costs are bound to period expenses, but something like credit card purchases for traveling employees can be per transaction.
- Depreciation. Depreciation is typically a fixed variable expense. Depreciation is necessary to help calculate the ROI on replacing major items. It is also typically a tax-deductible expense.
What are are few common Business Expenses?
- Bank fees
- Consulting fees
- Contract labor
- Dues and subscriptions
- Office supplies
- Postage and delivery
- Printing and copying
Some of the most business expenses which include tax-deductible:
- Payroll expenses
- Employee benefits
- Home office expenses
- Insurance premiums
- Rent or mortgage payments
- Retirement plans
- Depreciation of equipment
- Interest expense
- Digital Transactions
- Business Utilities
Types of expenses that are not tax-deductible:
- Political contributions
- Government fines or penalties
- Demolition losses or expenses
- Certain education expenses
- Legal fees
- Capital expenses