Small Business Expense Categories Guide

Running a small business means keeping an eye on every dollar spent—but are you missing critical opportunities to manage your finances better?

Small business expenses don’t always get the attention they deserve in the financial planning process—and that oversight can end up costing small businesses and startups a substantial amount of money.

Understandably, businesses tend to focus on boosting customer service and refining products. However, there are some straightforward ways to potentially lower your tax bill that can make a big difference.

Effective expense tracking can help you see exactly where your money goes, save on costs, and make informed decisions to drive business growth.

To help you navigate, we’ve outlined key categories of small business expenses. By categorizing and organizing them properly, you can maximize your tax benefits and streamline your financial tracking process.

Key Categories for Small Business Expenses

Creating tailored categories for your small business expenses allows you to efficiently track deductions.

By consistently recording and categorizing expenditures, your bookkeeper or tax preparer will have an easier time come tax season. Consulting with a financial advisor to determine which costs belong in which categories can also help you avoid overpaying.

Below are typical categories of small business expenses that apply to most companies, along with examples of what each includes and how to qualify for deductions.

Depending on your business, you may also have industry-specific categories, such as R&D expenses or expenses related to pursuing venture capital funding.

1. Office and Facility Costs

Every business needs a base of operations, and whether you’re working out of a commercial office space or a co-working facility, these costs can make up a significant portion of your small business expenses.

Rent and Utilities: Monthly rent, electricity, water, internet, and maintenance fees all fall under this category.
Office Supplies: From pens and paper to printers and storage, tracking these smaller items can prevent waste and keep costs down.

2. Technology and Software

In today’s digital age, technology is essential. Whether it’s an e-commerce platform, customer relationship management (CRM) software, or cybersecurity solutions, tech is often one of the larger expenses.

Software Subscriptions: Monthly fees for applications like accounting tools, communication software, or marketing platforms.
IT Services: This includes expenses for regular system updates, technical support, and any data storage solutions.
Hardware: Computers, tablets, smartphones, and any other equipment necessary to run your business smoothly.

Managing multiple software costs?

Bunker’s automated tracking can help you identify redundant subscriptions and optimize your tech expenses.

3. Employee-Related Expenses

Keeping your team motivated and fairly compensated is essential for success. These expenses encompass not only salaries but also additional benefits that contribute to a positive work environment.

Salaries and Wages: Payroll is typically the largest expense for businesses with employees.
Benefits and Perks: Health insurance, retirement plans, and other benefits are increasingly common in competitive markets.
Employee Training: Investing in employee skills keeps your team sharp and is key for business growth.

4. Marketing and Advertising

No matter how valuable your products or services are, you need marketing efforts to reach potential customers. Marketing expenses vary based on the strategies used, from digital advertising to physical flyers.

Online Advertising: Google Ads, social media promotions, and influencer marketing are popular for reaching wide audiences.
Content Creation: This includes costs for graphic design, video production, and copywriting.
Website Maintenance: Regular updates, SEO services, and site hosting fees are necessary to keep your online presence strong.

Gain insights on your marketing ROI with Bunker’s expense analytics feature, allowing you to identify which efforts generate the best returns.

5. Travel and Entertainment

Travel and entertainment expenses are crucial for businesses engaging in networking, attending conferences, or meeting with clients. When tracked effectively, these can add value and open new opportunities.

Travel Costs: Airfare, car rentals, fuel, and accommodation for business trips.
Client Entertainment: Meals, events, or entertainment offered to clients as part of relationship-building efforts.

6. Insurance and Legal Fees

Insurance and legal services are necessary to protect your business against risks and ensure compliance with industry standards. Although these expenses might not directly generate revenue, they prevent potential financial loss.

Business Insurance: General liability, professional liability, and property insurance are all must-haves for most businesses.
Legal Fees: Attorney fees for contract reviews, consultations, and legal documentation.

7. Professional Services and Outsourcing

Outsourcing is a practical approach for small businesses to access expertise without hiring full-time staff. Expenses in this category include fees for consultants, freelancers, and specialized agencies.

Accounting and Bookkeeping: Many small businesses outsource financial management to ensure compliance and accurate records.
Consultants: Marketing strategists, business coaches, and legal consultants often provide high-value guidance.
Freelancers: Graphic designers, content writers, and IT specialists who work on a per-project basis.

8. Inventory and Cost of Goods Sold (COGS)

If your business sells physical products, inventory costs and COGS are critical expenses. Properly managing these expenses helps with pricing, forecasting, and overall profit margins.

Raw Materials: The initial components used in manufacturing products.
Manufacturing and Assembly: Any labor or processing costs involved in creating a product.
Storage Costs: Warehousing fees for inventory management.

9. Taxes and Regulatory Fees

Paying taxes and complying with regulations are fundamental responsibilities for any small business. These can vary based on location, business structure, and industry, so it’s essential to categorize and track these expenses.

Federal and State Taxes: Income taxes, self-employment taxes, and other government fees.
Licensing and Permits: Fees for permits required by local or federal authorities.
Filing Fees: For annual reports, trademark renewals, or changes in business structure.

Stay ahead with Bunker’s tax prep features, helping you track deductible expenses, organize receipts, and streamline filing.

10. Research and Development (R&D)

For businesses focused on innovation, R&D is essential to creating new products, refining processes, or improving services. Although not every small business engages in R&D, those that do often find it leads to a competitive edge.

Product Testing: Costs related to developing and testing new products.
Market Research: Surveys, focus groups, and data analysis to better understand market needs.
Prototype Development: Creating initial models of a product for feedback and refinement.

11. Real Estate Taxes and Property Costs

If your business operates out of owned property, real estate taxes and associated costs can significantly impact your budget. Properly managing these expenses ensures financial predictability and helps you plan for future growth.

Property Taxes: These are recurring annual or semi-annual taxes levied on your commercial property. You’ll need to ensure timely payments to avoid penalties and maintain your business’s good standing.
Maintenance and Repairs: Regular upkeep like HVAC servicing, plumbing, landscaping, and repainting keeps your space functional and professional. Proactive maintenance helps avoid costly repairs later.
Leasehold Improvements: If you’re renting, customizing the space to meet your business needs—like installing new fixtures or upgrading workspaces—is often a necessary investment.

Actionable Tip: Consult with your accountant to identify which property-related expenses qualify for tax deductions, especially if you work from home.

12. Work-Related Car Use

Transportation is a crucial expense if your business involves meeting clients, attending events, or making deliveries. Tracking vehicle-related costs ensures accurate deductions and optimized budgets.

Mileage Tracking: Every mile you drive for work adds up, so use apps to log your mileage efficiently. This information is critical for claiming deductions and calculating reimbursements.
Fleet Management: If your business operates multiple vehicles, account for expenses like fuel, insurance, regular servicing, and emergency repairs.
Toll and Parking Fees: Whether it’s for attending meetings or delivering goods, keeping receipts for tolls and parking ensures you don’t miss any reimbursable costs.

13. Business Insurance

Having the right insurance policies in place protects your business from unexpected risks and financial setbacks. Regularly reviewing your coverage helps ensure you’re adequately protected without overpaying.

General Liability Insurance: This covers claims for property damage or injuries caused during business operations, making it a must-have for almost every business.
Professional Liability Insurance: If you offer professional services, this insurance protects you from claims of negligence or errors that could harm clients.
Cybersecurity Insurance: With the rise of data breaches, investing in a policy to cover potential cyberattacks can save your business from costly damage control.

Annual policy reviews with your insurance provider help ensure you’re covered for your current risks while eliminating redundant policies.

14. Industry-Specific Licenses and Fees

Depending on your field, obtaining the necessary licenses and certifications is essential for staying compliant and operational. These costs can vary widely but should always be accounted for in your budget.

Professional Licensing: If you’re in a regulated industry like healthcare, finance, or construction, licensing fees are often recurring expenses.
Regulatory Compliance Costs: Staying compliant with local, state, or federal laws—like health inspections or environmental permits—can involve both upfront and ongoing costs.
Annual Renewals: Many licenses and certifications require periodic renewal fees. Keeping track of these deadlines ensures uninterrupted operations.

15. Health and Safety Compliance

Ensuring a safe working environment for your team isn’t just a legal requirement; it’s also essential for productivity and employee satisfaction. These costs can vary but should always be planned for.

Safety Equipment: From fire extinguishers to protective gear, having the right tools can prevent accidents and reduce liability.
Training Programs: Conduct regular training sessions on workplace safety to keep your staff informed and compliant with industry regulations.
Inspection Fees: Regulatory authorities may require periodic inspections, and you’ll need to budget for the associated costs.

Partner with a safety consultant to identify potential risks and implement cost-effective compliance strategies.

Now that we’ve covered the essential categories of small business expenses let’s explore what it takes for these expenses to qualify as tax-deductible—and how they can directly benefit your bottom line.

What Qualifies as a Tax-Deductible Business Expense?

Small business expenses refer to the essential costs associated with operating your business and driving revenue.

Because of this broad definition, the IRS does not offer an exhaustive list of allowable deductions for small business expenses. Instead, the IRS requires that any claimed expense be “ordinary and necessary” for your business operations.

This makes it worthwhile to keep your records organized so you can maximize eligible write-offs and minimize your tax burden.

The IRS recommends reviewing Publication 535, which covers the deductibility of common small business expenses and the rules for tax filings.

Remember that deductible expenses are incurred by businesses that have a profit motive. If your business has financial challenges and is not yet profitable, you still need to show the IRS that you intend to make a profit, or your business may be classified as a hobby, disqualifying some deductions.

The IRS also advises businesses to categorize costs accurately—some expenses fall under “cost of goods sold” (COGs) or “capital expenses,” which may not be deductible in the year incurred.

How Bunker Can Help Streamline Expense Management

Effectively managing expenses is crucial for small business success. However, tracking and organizing costs across various categories like payroll, marketing, and utilities can become overwhelming. Bunker simplifies this process with a suite of tools specifically designed to make expense management efficient and insightful. Here’s how:

1. Automatic Expense Categorization

Bunker eliminates the hassle of manually categorizing expenses. With its advanced algorithms, the platform automatically organizes your expenditures into predefined categories, such as office supplies, travel, marketing, and utilities.

This ensures accurate classification and saves time, allowing you to focus on growing your business instead of administrative tasks.

2. Real-Time Expense Monitoring

Keeping track of spending in real time is vital to prevent budget overruns. Bunker’s intuitive dashboards provide an up-to-date view of your expenses across all categories, helping you stay informed about where your money is going.

This level of transparency enables proactive decision-making and ensures you remain within budget.

3. Seamless Integration with Accounting Tools

Bunker integrates seamlessly with leading accounting software like QuickBooks, Xero, and FreshBooks. This integration syncs your expense data automatically, reducing the chances of errors and simplifying reconciliation.

With Bunker, your financial records are always accurate and ready for analysis.

4. Customizable Expense Reports

Understanding your spending patterns is key to optimizing business finances. Bunker allows you to generate detailed and customizable expense reports, breaking down costs by category, department, or project. These insights help you identify areas of high expenditure and opportunities for cost reduction, empowering you to allocate resources more effectively.

5. Smart Expense Alerts

Budget management is easier with Bunker’s smart alert system. You can set up notifications for specific categories to track spending limits. For instance, if marketing expenses exceed your predefined budget, Bunker will alert you, ensuring you can take corrective action before it affects cash flow.

6. Cash Flow Integration for Holistic Management

Expenses don’t exist in isolation—they directly impact your cash flow. Bunker links your expense data to its comprehensive cash flow dashboard, giving you a holistic view of how expenditures affect your overall financial health. This feature helps you balance incoming and outgoing funds, ensuring steady liquidity.

7. Simplified Financial Collaboration

Whether you work with an accountant, a bookkeeper, or an in-house finance team, Bunker’s shared platform makes collaboration seamless. All stakeholders can access real-time expense data, reports, and insights, reducing miscommunication and streamlining decision-making processes.

8. Enhanced Decision-Making Through Insights

Beyond tracking and categorization, Bunker uses data analytics to provide actionable insights into your financial performance. These insights allow you to make data-driven decisions, optimize your spending strategy, and improve profitability over time.

Bunker is more than just a tool—it’s a financial partner that simplifies the complexities of managing small business expenses. With automation, real-time tracking, integration capabilities, and in-depth reporting, Bunker empowers you to control costs, improve cash flow, and focus on scaling your business.

Ready to simplify your expense management?

Bunker offers powerful features like automated expense categorization, real-time analytics, and receipt organization, helping small business owners stay on top of every dollar spent. Take control of your expenses today with Bunker—Start your 30-day trial with no credit card required.