General and Administrative (G&A) expenses are the indirect costs that cannot be traced to specific jobs. These are your day-to-day expenses that come with running a business. These expenses include rent, insurance, office supplies, utilities, selling and advertising costs. General expenses pertain to operational costs more than actual job costs. These expenses can be useful when calculating your business’s fixed costs. Any cost that is not specifically linked to the production or selling process and is not part of your research and development budget can be classified as a general and administrative expense.
The second type of costs are your direct and indirect job costs. These are your expenses that can be related directly or indirectly to a specific job. These include wages, materials, and subcontractor costs. For example, the lumber and nails you need to build are job costs and the money you pay the workers to build are also job costs. If it involves getting the specific job done, its most likely a job cost.
There are two types of job costs, the indirect costs and direct costs. Direct costs include the cost of labor, materials and the subcontractor expenses that can be traced directly to the construction project. Indirect costs are all the costs necessary for the performance of the contract and usually benefit more than one job. Indirect costs can be the repair and maintenance expenses for your equipment, taxes you pay, or even tools you buy.
You deduct your G&A expenses and job costs in the tax year you incur them. The IRS says an expense is incurred when the merchandises or services are received or when the amount of the expenses can be accurately determined. That means sometimes, you can deduct the expenses before you actually have to pay them. If you pay an expense that benefits your business for more than one year, you must spread the costs over the period of time you receive that benefit.
If you are unsure how to classify your company’s costs or need help filing taxes for yourself and your company, give us a call here at Polston Tax. We can help you get on the right track with the IRS. Call us now for a free consultation at 844-841-9857.