As a small business owner, tax season is one of the most important, and possibly stressful times of the year. How you file your business taxes significantly affects your numbers. Will you get money back or the government?

However, many business owners don’t realize that tracking their earning and expenses throughout the year is equally important. This includes learning how to categorize business expenses and documenting every penny spent.

How to Categorize Business Expenses

Whether you file your taxes yourself or use a professional accountant, you’ll be grateful you took the time to document and organize your expenses. We can help you out there. Take a look at how to categorize business expenses to make things much easier come tax season.

Payroll/Employee Benefits

If you have employees, you need to keep all funds going toward them separately documented. This means everything from wages and bonuses to employee benefits. Employee benefits include the taxes you pay for toward their social security, health insurance, workers’ compensation, and more.


Depending on your business and operations, learning how to categorize business expenses may include setting up a section for travel. Whether it’s for you or your employees, every scent your business spends on travel needs to be documented. This includes airfare, fuel, food, lodging, etc.


If your business spends money feeding yourself, your employees, or clients, it needs to have its own category in your business expenses. This could include taking clients out to dinner to close a deal, client appreciation parties, holiday employee parties, etc.


No business can survive without advertising and marketing. And while there are some cost-free marketing solutions out there, most of the time you’ll need to create room in your budget. This requires its own category in your expenses.

Vehicle Expenses

If your business owns company vehicles, learning how to categorize business expenses means learning how to log mileage and fuel, as well as accounting for depreciation. However, a personal vehicle used for business purposes must also be documented and used as a tax deduction.

Building Expenses

Did you know the average electricity bill for businesses is Β£3,061 per year in the UK? This is just one example of why you need to learn how to categorize business expenses. You also need to account for rent, maintenance fees, property taxes, phone lines, internet services, insurance, and all other building/property-related expenses.

Professional Services

Most businesses rely on other professional services to help them run day-to-day operations. This could be anything from IT services to roofing contractors. Regardless, you need to make a separate category for professional service in your business expenses spreadsheet.


Lastly, learning how to categorize business expenses means accounting for everything your business needs to operate in terms of supplies or equipment. For offices, this includes things like stationery, computers, printers, etc. For construction companies, this could include safety gear, tools, machinery, and more.

Want More Great Info?

No matter what kind of business you run, you need to learn how to categorize business expenses to avoid major headaches each tax season. Not only will it help you save a ton of money but being organized can also help you avoid a tax audit.

If you’re looking for more great information and advice, be sure to check out some of our other helpful articles on everything from business to personal lifestyle before you go.

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