Small-business expense categories
A stable set of expense accounts so this month’s profit and loss can be compared with last month’s.
General information, not tax or legal advice. Whether a cost is deductible, and how much, is a tax question. IRS Publication 535 discusses business expenses. This page is only about where a cost sits in the books.
Why the names matter more than the software
A category is a promise that the same kind of cost lands in the same account every time. If March rent is “Rent” and April rent is “Occupancy,” the profit and loss looks like rent disappeared. The dollar total of expenses can be right and still be useless for a break-even split between fixed and variable.
Keep these apart
Cost of goods sold versus operating expense
Cost of goods sold is the direct cost of what you sold: materials, the freight to get them in, and labor that only exists because a unit was made or a job was delivered. Rent for the shop is usually an operating expense even if the shop is where the work happens. Mixing them changes gross margin without changing profit. Use the COGS calculator when inventory is involved, and the chart of accounts numbers 5000–5200 for those costs.
Asset versus expense
A laptop you will use for several years is equipment, an asset, not “office supplies” in the month you bought it. You then depreciate it. Book depreciation can be straight-line. Tax depreciation, if you are looking up a recovery period you already know, is the MACRS table. A $12 pack of paper is an expense.
Liability versus expense
Sales tax you collected is not an expense and not revenue. It sits in sales tax payable until you remit it. The sales tax in the books page shows the entries. Employer payroll taxes you owe are an expense; the unpaid portion is also a liability.
Equity versus expense
Money the owner takes home from a sole prop is a draw, not “wages” and not “miscellaneous.” A W-2 salary to an owner who is an employee is a wage expense plus payroll taxes. The difference is the whole point of owner’s draw versus salary.
A short list that covers most first-year books
| Account | What belongs | What does not |
|---|---|---|
| Rent | Recurring occupancy for the business location | A security deposit (asset) or a personal apartment |
| Utilities | Electric, gas, water, internet at the business location | The owner’s home utilities, unless a documented business portion is already decided with a professional |
| Insurance | Premiums for business liability, property, or workers’ compensation | Health insurance, which often has its own account because the tax treatment differs |
| Software and subscriptions | Accounting, design, hosting, and domain fees | A multi-year license you capitalize |
| Office supplies | Items consumed in the ordinary course of a month or two | Furniture and computers |
| Advertising | Ads, listings, and paid social posts | A customer meal |
| Professional fees | Bookkeeper, CPA, attorney, and registered-agent invoices | Payroll for your own staff |
| Bank and merchant fees | Monthly account fees and card-processing fees | A transfer to the owner |
| Wages | Gross pay to employees | Contractor payments, which belong in contract labor |
| Payroll taxes | The employer share of FICA and any employer unemployment tax you record | Amounts withheld from employees, which are liabilities until paid |
| Meals | Business meals with a receipt and a business purpose written down | A personal lunch coded here because the card was handy |
| Travel and vehicle | Airfare, lodging, and either actual vehicle costs or a mileage log — not both for the same miles | The mileage calculator only multiplies miles by the 2026 IRS business rate. It does not decide that the trip qualifies |
Contract labor is its own line
Payments to independent contractors are not wages. They do not go through the employer payroll tax estimate. They may require an information return. The 1099 versus W-2 page covers the reporting threshold for payments made in 2026 and why worker classification is not a bookkeeping preference. Put the cost in contract labor so a later 1099 review has one account to open.