When you run a small business you incur lots of different expenses, from your business space to your raw materials. But these expenses aren’t all lumped into one group. Operating expenses are one type of expense that businesses incur on a regular basis. An operating expense, also called an operating expenditure or OPEX, is a cost you incur during the course of your day-to-day business operations.
Operating Expense Basics
Operating expenses are costs that are necessary for you to run the business, but they’re not directly related to production. Examples of operating expenses include:
- Business space rent
- Inventory costs
- Insurance costs
- Certain supplies
- Advertising costs
- Property taxes
- Licence fees
- Equipment maintenance fees on equipment
- Legal fees, and more
Operating Expenses vs. Capital Expenses
Not all expenses qualify as operating expenses, instead falling under the capital expense category. These expenses include the things you buy for your business as an investment, such as real estate, furniture, and production equipment. Operating expenses are treated differently than capital expenses at tax time. Businesses can usually write off operating expenses the year they are incurred. Capital expenses, on the other hand, are large costs associated with acquiring or upgrading tangible or intangible capital assets. Usually, capital expenses must be written off proportionally over a period of years.
Knowing which expenses fall under the operating expense category helps you determine if you can claim them on your tax returns. Track your expenses easily with QuickBooks Online and the Expense Hub. 5.6 million customers use QuickBooks. Join them today to help your business thrive for free.