What is considered utilities?

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.