What is a utility expense?
Utility expenses are the costs associated with essential services that keep a business’s facilities operational. These services support day-to-day operations by providing the basic infrastructure needed for employees, equipment, and systems to function.
What is a utility expense?
A utility expense is any ordinary and necessary business cost paid for essential services such as electricity, water, gas, or internet. These expenses are required to maintain a functional workspace and are directly tied to the ongoing use of business facilities, whether in an office, retail location, or remote setup. Utility expenses are recorded as operating expenses and recognized in the period in which the service is used.
How to categorize utility expenses
- Record under Operating Expenses on the income statement.
- Use specific categories such as Electricity, Water, Gas, or Internet for clarity.
- Allocate utility costs appropriately if space is shared or used partially for business.
- Match expenses to the period in which the utility services are consumed.
- Retain utility bills and payment records for documentation.
Examples of utility expenses
- Electricity for lighting, equipment, and climate control.
- Water and sewer services.
- Natural gas or heating fuel.
- Internet and Wi-Fi services.
- Business phone or VoIP services.
- Trash collection and recycling services.
Tax implications for utility expenses
- Utility expenses are generally tax-deductible if they are ordinary, necessary, and business-related.
- Home-based businesses must prorate utility expenses based on business use.
- Personal utility costs are not deductible unless properly allocated.
- Consistent categorization reduces audit risk and improves financial clarity.
- Utility expenses are deducted on Schedule C or under operating expense sections on business tax returns.
