As a business owner, it is vital that you separate your direct and indirect costs so that you can prepare your taxes appropriately. However, if you are new to the business world, you might not realize what the difference between the two might be. If you aren’t sure you know how to tell the difference between the two, Mark Dicus & Company is here to talk about what the differences might so that you can determine which category your expenses fall under.
Direct Cost Expenses
When trying to understand what direct expenses are, think of this as the money that is needed for the goods or the services that you sell. If you are a seamstress, your direct expenses would include things like fabric, thread, your sewing machine and any other expense that you have as you create the goods that you are going to sell. In fact, direct expenses are sometimes referred to as the cost of goods sold. Some examples of direct expenses might include:
– Direct materials
– Labor costs
– Transportation costs
– Manufacturing supplies & equipment
– & any other costs needed for production
What are Indirect Expenses on Taxes?
Much like the name implies, indirect expenses aren’t going to be associated with the goods you produce or the services you provide. These expenses are sometimes called overhead costs. This is money that will be vital to running your business, but you won’t be able to link these expenses to any one product or service. They are usually used to support the business in a number of different ways rather than one specific aspect of production. If you were to look at it from a seamstress’ point of view, it would be the cost of electricity so that he/she can continue to use the sewing machines, shipping costs for supplies, business license fees and so on. Some examples of indirect expenses might include:
– Technology & software
– Office expenses
– Insurance costs & permits
– Legal & accounting fees
– Marketing expenses
– Administrative staff
Impact of Direct & Indirect Expenses on Organizational Performance & Profitability
For obvious reasons, both direct and indirect expenses are going to impact your bottom line. You will have to spend money to make money, in a sense. The direct expenses are going to be expenses that have a direct impact on the cost of producing your goods. The indirect expenses aren’t going to be as noticeable, but they are still just as essential as the direct costs are.
Bookkeepers, Accountants & More in Summerlin, North LV, Henderson, Lone Mountain Village & Greater Las Vegas, Nevada
If you have questions about what business expenses are direct and indirect as you get ready to work on taxes for your business, you can turn to Mark Dicus & Company to have all the answers you need. We will help ensure your taxes are done correctly and that you are taking advantage of as many tax savings and credits as possible. Call us today!