How to categorize administrative expenditure?

What are administrative expenses?

Administrative expenses represent the internal, non-production costs that keep a business functioning. These are the expenses required to manage operations, maintain compliance, and support other departments. Unlike direct costs, administrative expenditures remain relatively stable regardless of sales or production levels, making them part of fixed overhead.

How to categorize administrative expenses

• Record as Operating Expenses on your income statement.
• Use an “Administrative Expenses” or “General and Administrative (G&A)” account in your chart of accounts.
• Classify as Indirect Costs since they support overall operations rather than specific projects.
• Separate from Selling and Production expenses for clear financial reporting.
• Include recurring overhead items such as office rent, salaries, and professional services.

Examples of administrative expenses

• Salaries and benefits for administrative and executive staff.
• Office rent and utilities.
• Accounting, bookkeeping, and audit services.
• Legal and compliance fees.
• Office supplies and software.
• Insurance and licensing fees.
• Depreciation on office furniture and equipment.
• IT support and communication systems.
• Corporate memberships or subscriptions.

Tax implications for administrative expenses

• Administrative expenses are fully tax-deductible as ordinary and necessary business expenses.
• Deductions must relate directly to business operations — personal administrative costs are not deductible.
• Capital expenditures (e.g., office furniture or computers) should be capitalized and depreciated rather than expensed immediately.
• Accurate classification helps determine operating profit and supports compliance in financial statements.
• Keep receipts, contracts, and payroll documentation to substantiate deductions in case of an IRS audit.