What is an SG&A expense?

What is an SG&A expense?

SG&A expenses, short for Selling, General, and Administrative, are any ordinary and necessary business costs related to selling products or services, managing the business, or performing administrative functions. Unlike Cost of Goods Sold (COGS), SG&A expenses are indirect costs that cannot be traced to a specific unit of production but are essential to keeping the business operational. SG&A expenses appear on the income statement and are often analyzed closely by investors and management to understand overhead and scalability.

How to categorize SG&A expenses

• Record under Operating Expenses on the income statement.
• Group expenses into Selling, General, and Administrative categories for clarity.
• Exclude costs directly tied to production or service delivery (these belong in COGS).
• Apply consistent categorization across accounting periods for accurate comparison.
• Maintain detailed records and receipts to support each expense category.

Examples of SG&A expenses

• Sales salaries, commissions, and sales team bonuses.
• Marketing, advertising, and promotional costs.
• Office rent, utilities, and supplies.
• Executive and administrative salaries.
• Legal, accounting, and professional service fees.
• Insurance, licenses, and compliance costs.
• Office software and administrative subscriptions.

Tax implications for SG&A expenses

• SG&A expenses are generally tax-deductible if they are ordinary, necessary, and directly related to business operations.
• Expenses must be allocated to the correct tax year based on the business’s accounting method.
• Personal expenses included in SG&A are not deductible and must be excluded.
• Clear separation between SG&A and COGS reduces audit risk and improves financial clarity.
• Deduct SG&A expenses on Schedule C or under the operating expense sections on business tax returns.