What is a billable expense?
Billable expenses are business costs that a company incurs on behalf of a client and then passes on to that client for reimbursement. These expenses are directly tied to delivering client work and are typically outlined in contracts or engagement agreements.
What is a billable expense?
A billable expense is any ordinary and necessary cost a business pays while performing services for a client that is eligible to be charged back to that client. These expenses are incurred specifically for a client’s project and are billed in addition to professional fees or service charges. Billable expenses must be clearly communicated, properly documented, and approved under the terms of the client agreement.
How to categorize billable expenses
- Record the expense under the appropriate Operating Expense category.
- Track billable expenses separately to ensure accurate client invoicing.
- Record reimbursable amounts as income when billed to the client.
- Align expense treatment with contract terms and billing policies.
- Keep detailed receipts and descriptions for each billable cost.
Examples of billable expenses
- Client-specific travel, lodging, and transportation costs.
- Shipping, courier, or delivery fees for client materials.
- Printing or production costs for client projects.
- Third-party vendor or subcontractor fees billed to the client.
- Specialized software or tools purchased solely for a client engagement.
- Filing or permit fees paid on behalf of a client.
Tax implications for billable expenses
- Billable expenses are generally deductible business expenses when incurred.
- Amounts reimbursed by clients are typically included in gross income.
- Proper offsetting of income and expenses prevents overstating profit.
- Undocumented or non-business-related costs may not be deductible.
- Billable expenses are reported on business tax returns based on accounting and revenue recognition practices.
