What is considered utilities?
In business accounting, utilities refer to recurring services that are essential for the day-to-day operation of a business facility. These include services like electricity, water, gas, and internet that support a company’s operational infrastructure.
How to categorize utility expenses?
- Record as Operating Expenses in your income statement.
- Use a dedicated "Utilities" account in your chart of accounts.
- If applicable, split costs by department or location for better tracking.
- For home offices, categorize only the business-use portion of shared utilities.
- Include utilities tied to production (e.g. factory electricity) in COGS, if relevant.
Examples of utility expenses
- Electricity: Powers lighting, computers, and office equipment.
- Water and Sewage: Provides water and handles wastewater disposal.
- Natural Gas or Heating Oil: Fuels heating systems and certain appliances.
- Internet and Phone Services: Supports business communication and operations.
- Trash Collection: Covers regular removal of office or facility waste.
- Air Conditioning or HVAC: Maintains a comfortable indoor climate and air quality.
- Cable TV: Used for customer areas or industry-specific needs.
- Mobile Phone Plans: For employee communication and business-related tasks.
Tax Implications for Utility Expenses
- Utility expenses are generally 100% tax-deductible if used solely for business purposes.
- For home-based businesses, only the business-use portion is deductible, usually calculated by square footage or time of use.
- Keep detailed records and receipts to support deductions in case of an IRS audit.
- If utilities are included in rental payments, they must be separated to claim the full deduction.
- Some businesses may claim sales tax exemptions on utility usage directly related to production or resale activities, depending on local laws.
