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And healthcare firms likely will not need lawn equipment. Now, we understand that different industries will likely have different expense categories.įor instance, a financial services company likely will not be purchasing large quantities of medical supplies. An expense does not have to be indispensable to be considered necessary.” Seven Common Small Business Budget Categories to Consider A necessary expense is one that is helpful and appropriate for your trade or business. As highlighted by the IRS, “An ordinary expense is one that is common and accepted in your trade or business. The second is that the expense is ordinary and necessary. The first requirement is for the expense to be incurred in a trade or business–think a business lunch, mileage accumulated going to-and-from a meeting, travel expenses such as flights and lodging, office rent, or necessary supplies. While the IRS doesn’t dictate all possible deductions a business can make, it does provide two requirements. What is a Business Expense CategoryĪ business expense category (or budget category) is a systematic way of grouping expenses for tax reporting and budget planning purposes. We will cover all of the above and more in this post with the ultimate goal of explaining key criteria to think about for your budget expense categories. To get the ball rolling and determine what categories to consider, it is essential to understand what a business expense category is, the three major types of expenses, and to also review guidelines from the Internal Revenue Service (IRS). If these expenditures are organized into specific business categories, you can create effective operating budgets, accurately file your taxes, and ensure that your finances are in order

Every time you pay rent for your business, order office supplies, book a business trip, or spend money on marketing and advertising, you’re incurring a business expense.