Business Expense
A cost incurred in the ordinary course of running a business that can typically be deducted from revenue.
A business expense is any cost that is incurred as part of normal business operations. These expenses are subtracted from revenue to determine taxable profit, making accurate tracking essential for both financial management and tax compliance.
Types of Business Expenses
Business expenses fall into several categories. Fixed expenses (rent, insurance, salaries) remain consistent month to month. Variable expenses (materials, shipping, travel) fluctuate with business activity. Capital expenses (equipment, vehicles) are typically depreciated over time rather than deducted all at once.
Common categories include: office rent and utilities, software subscriptions, travel and transportation, meals and entertainment (subject to limitations), professional services, marketing and advertising, insurance, and supplies.
Why It Matters
Every legitimate business expense you track and document is a potential tax deduction. But the IRS requires "contemporaneous records" — meaning you need receipts and documentation created at or near the time of the expense. Reconstructing expenses at year-end from memory or bank statements alone doesn't meet the standard and puts you at risk in an audit.
Example
A marketing consultant's monthly business expenses include: Slack ($12.50), Zoom ($13.33), Google Workspace ($12), Canva Pro ($12.99), a client lunch ($67), and a cab to a meeting ($23). Total: $140.82 in deductible expenses — but only if each one is properly documented with a receipt.
Related Terms
- Tax Deduction — Expenses that reduce taxable income
- Expense Tracking — Recording and monitoring expenditures
- Expense Report — Documents summarizing business expenses
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