What are business expenses?

Business expenses are the costs a company incurs as part of its normal operations. These include everything from rent and utilities to wages, supplies, insurance, and marketing. Business expenses are a core part of running any company—and many are tax-deductible, which can reduce your overall tax liability.

For small business owners, tracking business expenses accurately is key to maintaining healthy cash flow, staying compliant, and maximizing tax savings. If you’re looking for a simple way to handle payroll and expense-related reporting, Homebase payroll helps automate and organize your business finances.

Examples of common business expenses

There are many types of expenses that qualify as business-related. Some of the most common include:

• Rent or lease payments – For office space, storefronts, or equipment
• Utilities – Electricity, water, internet, phone service
• Payroll and wages – Salaries, hourly wages, bonuses, and payroll taxes
• Employee benefits – Health insurance, retirement contributions, paid time off
• Office or store supplies – Pens, paper, POS systems, cleaning products
• Inventory and materials – Goods for resale or raw materials for production
• Marketing and advertising – Online ads, flyers, signage, and sponsorships
• Insurance premiums – General liability, workers’ comp, business property insurance
• Professional services – Legal, accounting, and consulting fees
• Travel and meals – For business trips or client meetings (subject to IRS rules)

Some expenses are fully deductible, while others may have partial or conditional deductibility based on IRS guidelines.

Business expenses vs. personal expenses

One of the most important rules for business owners is keeping personal and business finances separate. Only expenses that are ordinary and necessary for running your business can be deducted or reimbursed through the business.

For example:

• Buying lunch during a personal day off? Not deductible.
• Taking a client out to lunch to discuss a deal? Potentially deductible.

Mixing personal and business expenses can create tax issues, complicate accounting, and increase the risk of audit.

How business expenses impact your taxes

Most ordinary and necessary business expenses are deductible, meaning they reduce your business’s taxable income. That’s a big deal for small business owners, as it lowers how much you owe in taxes at year-end.

Example: If your business makes $100,000 in revenue and you have $40,000 in expenses, your taxable income is $60,000.

Carefully tracking and categorizing expenses helps ensure you claim every eligible deduction, which can save you thousands.

How to track and manage business expenses

Accurate expense tracking is essential—not just for taxes, but for understanding how your business operates. Here’s how to stay on top of it:

• Use dedicated business accounts – Keep all transactions separate from your personal spending
• Save all receipts and invoices – Digital or physical copies work, just make sure they’re organized
• Use accounting software – Apps like QuickBooks, Xero, or Wave make it easy to categorize and track expenses
• Track employee reimbursements – Keep records of what employees spend and reimburse them accordingly
• Review regularly – Don’t wait until tax season—monitor expenses monthly or quarterly

Having clean records makes tax filing smoother and gives you clearer insights into where your money is going.

Best practices for small business owners

• Create an expense policy – If you have a team, define what is and isn’t reimbursable
• Set budgets – Allocate spending for different categories like marketing, supplies, and labor
• Review vendor contracts – Look for cost-saving opportunities or better terms
• Watch for recurring charges – Cancel unused subscriptions or services
• Automate where possible – Use tools to track expenses, scan receipts, and flag unusual spending

When you treat expense tracking as a habit—not a year-end chore—you gain better control over your business finances.

How Homebase helps with payroll and expense management

Homebase makes managing labor costs, time tracking, and payroll simpler and more accurate—which are some of the biggest operating expenses for small businesses.

With Homebase, you can:

• Track employee hours, wages, and overtime in real time
• Sync labor data with payroll for accurate processing
• Generate payroll reports and cost summaries
• Automate tax filings and direct deposits
• Keep digital records to help with audits and tax prep

Explore Homebase payroll to streamline expense-related tasks, reduce manual work, and stay organized as you grow.

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