Categorizing and tracking small business expenses, the right way

Keeping a small business running on your own is no easy feat. You must account for several types of expenses as a small business owner to help your business grow. Instead of trying to tackle them all at once, categorizing your expenses will help you manage your finances more effectively. You will also be able to keep all business transactions in an organized filing system and even make your tax filing easier.

Tax-Deductible Business Expenses

These are commonly known as “tax write-offs.” They are the costs you can deduct from your total revenue to find out your taxable income. These tax-deductible expenses will reduce the amount of taxes you should pay for operating your business. Some examples of tax-deductible expenses are:

  • Business use of home and/or car
  • Direct labor
  • Taxes
  • Office or storage facility rent
  • Insurance payments
  • Utilities

Categories of small business expenses

You should categorize the expenses of your business so that it is easier for you to detect any deductible items. Let us look at the common tax-deductible expenses in detail:


The taxes of a small business include all sorts of business-related tax expenses. Some examples of these are:

  • State and local sales tax
  • State and local income tax
  • Personal property tax
  • Excise tax

Utilities and Rent

The expenses you have to pay for the utilities you use to run your business operations can be deductible. some examples include:

  • Telephone bills
  • Internet bills
  • Electricity bills
  • Rent paid for office space
  • Rent paid for storage space


Ordinary and necessary insurance costs are tax-deductible as business expenses if you use them only for your business. Some examples of tax-deductible insurance expenses are:

  • Insurance premiums
  • General and professional liability insurance
  • Commercial property insurance
  • Data breach insurance

Vehicle Expenses

When you use a vehicle for your business, you can file away the costs of ownership and operations as tax-deductible. Some deductible vehicle expenses are:

  • Cost of gas
  • Mileage from business use
  • Parking fees and tolls
  • Depreciation


Any wages you pay out for the employees of your business or for outsourcing talent via contractors are counted as tax-deductible expenses.

Categorizing small business expenses

It’s wise to start categorizing your business expenses today if you have never filed business taxes before this. It will help you keep on top of your expenses easily.

Use a separate bank account for expenses

An easy way to track business expenses is to use a separate bank account for the specific business expenses you must make. Some business owners choose to maintain a utilities bank account to help pay all their business-related bills.

Use a tracking app or software

There are tracking apps and software on the internet which are extremely user-friendly and free most of the time. This software can help you easily track your expenses and taxes. The old way was to manually maintain spreadsheets to track the expenses. But today, business owners can use an automated system that creates invoices and expense reports.

The benefits of tracking your business expenses

Here are some pros of tracking the expenses of your business:

  • Helps you identify tax-deductible expenses
  • Aids you prepare better for tax season
  • You can produce your transaction records for business audits and inspections
  • You can realize the profitability of your business
  • Helps you budget effectively

By Resume Mansion


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