A company makes many expenditures in its day-to-day operations. Breaking costs into categories helps everyone involved to understand how to track the expenses for accounting and tax purposes. Two majors groupings would be capital and business expenses, with the latter having several smaller components. Many of these are listed as separate line-item deductions on annual tax returns.

Capital Expenses

Capital expenses are typically large outlays of funds used to purchase assets for a company. These may include a building, machinery and larger more expensive pieces of equipment, furniture or company vehicles. Assets like this are expected to last longer that one year. While they are not deductible on tax returns as expenses, businesses can recover this money over time using depreciation, amortization or depletion accounting methods.

Business Expenses

General business operating expenses are everything you spend in the course of managing your company. Major divisions include personnel, rent, cost of goods sold, other and miscellaneous expenses.


Often, money spent on personnel is one of the largest expenditures for a company. This includes salaries, commissions, pensions and contributions to retirement plans. Additional benefits such as tuition reimbursements are part of these personnel costs.

Cost of Goods Sold

Any costs related to producing your company's product used in figuring your cost of the goods you sell. Some of the costs include raw materials, packaging, shipping and storage expenses for inventory. If you purchase products for resale, your purchase price is the cost of goods sold.


Another large, regular expense is rental for office space or a storefront. Usually, this represents one of the larger regular monetary outlays, as it typically is paid on a monthly basis. Small businesses that utilize home office space can deduct the use of space on their tax return, based on the percentage of the home that is used only for business purposes.


A variety of taxes must be paid throughout the year, as part of keeping a company going. Deposits for employee and owner withholding, Social Security and Medicare deductions must be made regularly. Other taxes to consider are self-employment, sales and use, state and local, real estate, franchise or fuel taxes.


Insurance provides a company with a safety net when unexpected circumstances hit. Companies may make payments to employee health or life insurance plans, worker's compensation or unemployment insurance. They may also buy protection against theft, fire and other loss, liability coverage, malpractice or auto insurance for the vehicles they own.

Other Expenses

Often, reimbursements are made to employees for the expenses they incur while performing business tasks for a company. As such, the company may calculate these reimbursements as their own expenses. Costs for taking clients to dinner, providing entertainment or giving gifts all fall into this category. Similarly, reimbursement for travel expenses such as fares, tolls and parking must be reasonable and substantiated by employees. Mileage is also reimbursable, but must be within the allowable federal rate which is revised annually. All items in this category must clearly be for business, not personal, use and should be well-documented.


Several smaller categories fall under the heading of miscellaneous expenses. Typically, these items will be accounted for separately in a company's books and listed as expense deductions on tax returns. These include training, professional fees, supplies and utilities, and repairs. Expenses for training or educational purposes may include books, trade journal subscriptions or online course fees. Fees for conferences and seminars or workshops that are business-focused would also fall into this category.

Professional fees are another common expenditure that occurs frequently in business. Service charges from lawyers, accountants, business consultants or payroll companies are typical costs of seeking out professional advice and payroll or tax preparation documents. Another large part of running an office is the money spent on daily supplies used by employees. Basic items such as pens, copy paper, ink, file folders and paper clips are counted as supplies. The cost of electricity, gas or oil for heating, internet service and telephone usage is also put into this miscellaneous grouping.

Another item in this category is repairs made to equipment, vehicles or buildings. Repairs are considered work done to restore something to its normal, efficient operating condition. Examples of repairs include fixing a leaking pipe in the employee bathroom, replacing a computer hard drive or fixing a broken window on a building you own. Any repair that substantially increases the value of an item is considered an improvement, and it would come under the heading of a capitalized expense.

Tax Time

They are many rules that apply to each of these categories and exceptions for what counts as business versus capitalized expenses. Questions on the law should always be directed to a tax professional or business adviser, who is familiar with current regulations, before filing any tax returns.