Best ways to categorize business expenses

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February 9, 2021

Business expenses are basically the costs that a business incurs for generating sales. Every time you pay rent for your corporation, order new office supplies or do any other purchasing, you are simply covering a business expense. If you are able to organize the diverse costs in separate expense categories, you can easily create budgets, maintain accurate books, and correctly files cases. With this, businesses can effectively claim the tax savings that are available for their organization. 

Categorizing business expenses 

How you categorize your business expenses isn’t only about prepping for tax season. Rather, effective and organized categorization of business expenses prepares your business for savvy financial management. All sorts of business expenses must be documented in a manner that enables business owners and financial managers to assess their finances and work on the tax deductions quickly. So, if you are unaware of how to categorize your business expenses, we’ll make your job easy by suggesting simple categories that will help you with budgeting, purchasing, and the yearly tax write-offs. Here is a dropdown that covers the major categories of business expenses! 

Rent and utilities 

For every business, considering and monitoring the overhead costs, these expenses can be fixed and play an important role in smoothly operating your business. You must track all these costs from time to time and never skip them. Most of the rent and utility costs would include- electricity, rent or mortgage, gas, sewage, Internet, trash collection, phone, and so on. 

Office supplies 

Irrespective of the workplace, businesses need to purchase items on a regular basis for improved productivity and these are counted as office expenses. Office supplies comprise printers, furniture, computers, snacks, beverages, and kitchen supplies. 

Payroll expense 

For the majority of the businesses, payroll counts as the largest share of the budget. You can build a payroll expense category for easily identifying and filtering out the fixed expense of payroll that will assist you in tracking trends in the variable cost of hourly and fluctuating payroll wages.  

Benefits 

Benefits comprise all non-wage benefits that are given to the employees. The benefits provided are never the same for two organizations and they vary from business to business, which changes with time. You need to list all the benefits-related expenses for tracking spending with time and understand, which gives the employees a great ROI. Out of all, the major benefits comprise- vacation days, insurance, sick days, fitness allowances, child care, training, retirement, subscriptions or memberships, and so on. 

Travel expenses 

Travel expenses are incurred when businesses occur outside the premises of the workplace, which comprises lodging, flights, cab rentals, food on the road, and mileage reimbursement. A business must consider all sorts of travel expenses that include travel arrangements made by your travel or accounting teams, out-of-pocket expenses your business members submit after a business trip.  

Marketing and advertising 

Build a category thoroughly for the overall growth and marketing of a business and you need to ensure that you are tracking all sorts of advertising-related expenses: from radio, Internet, print, television, email, social media, visual display, to paid click marketing. Including other additional production costs like hiring a video crew person for producing commercials. 

Entertainment & Meals 

Expenses related to meals and entertainment are the most neglected or go unnoticed and are quite often not reported correctly. However, these expenses are tax-deductible; businesses must categorize these expenses correctly and thoroughly. It comprises meals offered to employees like annual ceremonies dinner, team lunch, meals for clients, and so on. At the same time, entertainment expenses would include big events like company parties, annual parties, or taking clients to some events, and so on. 

To file a meal expense report is always a tiring task and these receipts usually get lost before even the expense report is filed. In that case, you must upgrade your expense reporting process to the digital and automated expenses management system that helps you in actively managing, budgeting, categorizing for all sorts of meals and entertainment in the organization while keeping purchases in check. 

Business vehicle expenses 

Vehicles are an essential part of carrying out the regular operations of a business and notably contribute expenses. May it be cars, trucks, or specialized vehicles for the industry, the rental and loan payments on these vehicles and other costs that are connected with it must be tracked and classified carefully. The traditional costs that are connected with normal car expenses- registration fees, lease or loan payments and interest, insurance, maintenance and repairs, gas, parking fees, storage, and tolls. 

Get started now

Categorizing, tracking, and managing all these business expenses regularly can be daunting for businesses and counting on an automated expense management system can make your job easy. TERA can make categorization of business expenses easy and intuitive and ensure that your business doesn’t miss out any important expenses. TERA has got your back at all times from tracking expenses, one-click categorizations, managing budgets, visual interpretation to easy sorting of all business expenses. 

Connect with TERA experts today to learn more about our smart and next-gen expense management system. We are just a call away! 

Author

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Praveen Sudha

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