One of the most common questions I get is how to categorize certain expenses.

Things like…
Is Canva marketing or subscriptions?
Where does a website designer go?
What about software, contractors, or random tools you forgot you signed up for?

It sounds simple, but it actually matters more than people think.

Not just for taxes, but for how useful your financials are throughout the year.

So let’s walk through how to think about it in a way that keeps your books clean and easy to understand.

First, What Actually Counts as a Business Expense?

In general, the IRS considers an expense deductible if it is “ordinary and necessary.”

In plain terms, that just means:

• Is this common for your type of business?
• Does it help you run your business?

That is your starting point.

There are always exceptions, but if you can answer yes to both of those, you are usually on the right track.

But This Is Not Just About Taxes

This is the part that often gets missed.

Yes, categorizing correctly helps at tax time. But even more importantly, it determines whether your financial reports are actually useful.

If everything is thrown into random categories, your reports will not tell you anything meaningful about how your business is running.

Clean books are what give you clarity.

A Simple Way to Think About Categories

Instead of trying to memorize rules, I like to think about categories based on what the expense is doing for your business.

Here are some of the most common ones I see with service based businesses:

Advertising and Marketing

If you are spending money to promote your business, it usually goes here.

This can include:

• Facebook or Google ads
• Branding photoshoots
• Printed marketing materials

Where people get stuck is with tools like Canva or email platforms.

Those can technically go here or under subscriptions. The key is not which one you pick. The key is that you stay consistent.

Software and Subscriptions

This is for the tools you use to run your business day to day.

Think:

• QuickBooks Online
• Your CRM
• Project management tools
• Communication tools like Slack
• Scheduling software
• Google or Microsoft

If it is a digital tool that helps you operate your business, it likely belongs here.

And yes, this is where Canva could also go. Again, consistency matters more than perfection.

Website and Hosting

Anything that keeps your website running or supports your online presence goes here.

Examples include:

• Website hosting
• Domain registration
• Website builders like Squarespace or Showit
• Website design services

One small note here. If you hire someone for custom design work, I usually categorize that as contract labor instead. But if you are buying a template and setting it up yourself, this category works just fine.

Equipment and Technology

This one is for physical items you use to do your work.

Things like:

• Laptop or tablet
• Monitors
• Printer
• Office furniture

Depending on the cost, some of these may need to be treated as assets instead of expenses.

If you are making a larger purchase, it is always a good idea to check with your accountant on how they want it handled.

Professional Services

If you are paying another professional for their expertise, it goes here.

For example:

• CPA or tax prep fees
• Bookkeeping services
• Legal services
• Business consultants

This is one of the cleaner categories and usually pretty straightforward.

Salaries and Wages

This is for employees.

If you have a team on payroll, their wages go here. Along with that, you will also want to track payroll taxes separately to keep things clean.

If you are paying contractors instead of employees, those should not go here. They belong in a different category.

Contract Labor

If you are hiring freelancers or independent contractors, this is where those payments go.

Examples:

• Virtual assistants
• Social media managers
• Copywriters

One important thing here is making sure you are collecting W9s and keeping your vendor information organized. It makes 1099 filing much easier later on.

Travel

Travel expenses need to have a clear business purpose.

This can include:

• Flights
• Hotels
• Rental cars
• Meals while traveling

But just being out of town and checking emails does not make something a business expense.

If you are traveling for a client meeting, conference, or training, that is different. Just make sure you are documenting the purpose of the trip.

A Few Other Common Categories

These are a normal part of running a business and tend to come up regularly.

Rent

If you are paying for a space outside of your home to run your business, it goes here. If you work from home, this is where you would want to talk to your accountant about handling home office expenses instead.

Interest Expense

This is the interest portion of any loan or credit card payments. Keep in mind that loan payments are usually split between principal and interest, and only the interest piece is deductible.

Merchant Fees

These are the fees you pay to accept payments through platforms like Stripe or Square. They are easy to overlook, but they add up over time.

Continuing Education

If you are investing in courses, certifications, or trainings that improve your current skill set, they typically go here. If it is training for a completely new career, it may not qualify.

Office Supplies

These are your smaller, everyday items like paper, ink, notebooks, or anything you need to keep things running behind the scenes.

Insurance Expense

This includes the policies you carry to protect your business, like general liability, professional liability, or cyber insurance.

The Most Important Part

If you take one thing from this, let it be this.

Consistency matters more than getting every single category perfect.

You do not want to categorize something one way in January and then change it halfway through the year. That is what makes your financials messy and harder to trust.

Pick a structure that makes sense and stick with it.

Need Support?

If your books are not quite where they need to be or you are tired of second guessing how things should be categorized, this is exactly the kind of work I help clients with.

Strong bookkeeping is the building block of a healthy, sustainable business. I work with service based business owners to get their financials organized and keep them that way. If that would be helpful, I would be happy to connect.