Administrative Cost Examples: Categories, Deductions, Benchmarks

Administrative cost examples include executive salaries, corporate office rent, accounting and legal fees, general liability insurance, HR staff wages, IT infrastructure, office supplies, and utilities for headquarters. These are the expenses of running the business itself, separate from making a product or closing a sale. On the income statement they land inside Selling, General, and Administrative expenses (SG&A) and reduce operating profit directly.

What Counts as an Administrative Cost

A cost is administrative when it supports the overall management and infrastructure of the company rather than production or revenue generation. Payroll processing, contract review, and onboarding a new hire don’t create inventory or bring in a sale, but the business can’t function without them.

In accounting terms these are “period costs.” They hit the income statement in the period you incur them, no matter how many units you produced or sold. That is the sharp line between administrative costs and Cost of Goods Sold. COGS attaches to inventory (raw materials, factory labor, manufacturing overhead) and sits on the balance sheet as an asset until the product sells. Administrative costs never touch inventory. The IRS treats ordinary business operating expenses as costs “you don’t have to capitalize or include in the cost of goods sold but can deduct in the current year.”1Internal Revenue Service. Publication 334 (2025), Tax Guide for Small Business

The other cost that gets confused with administrative is selling. Both share the SG&A line, but selling costs exist to generate revenue while administrative costs exist to run the organization. A sales rep’s commission is a selling cost. The salary of the controller who processes that commission check is administrative. Advertising, marketing campaigns, sales travel, trade show fees, and promotional materials are selling. Legal, accounting, executive pay, corporate rent, and compliance are administrative.

Examples by Category

Personnel and Benefits

The biggest slice of administrative spending at most companies is compensation for non-production staff. Typical examples:

  • Salaries for the CEO, CFO, general counsel, and their support teams
  • Human resources staff and administrative assistants
  • The internal accounting and finance department
  • Health insurance premiums, retirement plan contributions, and payroll taxes tied to those salaries
  • Training and continuing education for administrative staff, such as a CPE seminar for the finance team

Office Overhead

Running the workspace generates a steady stream of administrative expenses:

  • Rent or lease payments for corporate office space
  • Property taxes on owned office buildings
  • Utilities including electricity, gas, water, and internet
  • Office supplies such as paper, toner, and postage
  • Depreciation on office furniture, computers, and equipment used by administrative staff

If a single building houses both a factory floor and the corporate offices, rent and utilities get allocated between production overhead (which flows into COGS) and administrative costs based on square footage or another reasonable method. Only the office portion counts as an administrative expense.

Professional Services and Compliance

External professional fees are a large administrative category, especially at larger companies:

  • Legal fees for corporate governance, contract review, and intellectual property maintenance
  • Audit and accounting fees paid to outside CPA firms
  • General liability and property insurance covering corporate facilities and operations
  • IT infrastructure including network maintenance, cybersecurity, and enterprise software licenses
  • Regulatory filing fees paid to agencies such as the SEC or a state business division2eCFR. 17 CFR Part 230 – Filings, Fees, Effective Date

State annual report fees alone range from $0 to over $800 depending on jurisdiction, and most businesses owe them every year or every two years to stay in good standing. Third-party registered agent services typically run $35 to $350 per year on top of that.

Where Administrative Costs Show Up on Financial Statements

On the income statement, administrative costs sit inside Operating Expenses. Most companies group them with selling expenses under a single SG&A line. The math:

Revenue − Cost of Goods Sold = Gross Profit
Gross Profit − SG&A (and any separately stated depreciation) = Operating Income

Operating income is sometimes called Earnings Before Interest and Taxes (EBIT), though the two aren’t always identical depending on how a company handles non-operating items. Every dollar of administrative cost reduces operating income by a dollar, which is why these numbers get scrutinized by investors.

Some companies break out general and administrative (G&A) expenses on a separate line from selling expenses. Others combine everything into one SG&A number and put the breakdown in the footnotes. When comparing two companies, check the presentation before drawing conclusions.

What’s Deductible and What Isn’t

Most administrative expenses are deductible in the year you pay them, provided they meet the “ordinary and necessary” standard under the tax code. An ordinary expense is common in your industry; a necessary expense is helpful and appropriate for the business. The statute specifically lists reasonable salaries, business travel (with meals and lodging that aren’t extravagant), and rent payments as deductible.3Office of the Law Revision Counsel. 26 US Code 162 – Trade or Business Expenses Office rent, utilities, insurance premiums, professional fees, and administrative salaries all qualify, and they reduce taxable income dollar for dollar in the year incurred.

Startup administrative costs are a common exception. Expenses you incur before the business officially opens — market research, employee training, scouting office locations — get special treatment. You can deduct up to $5,000 of startup costs in the year the business begins, but that allowance shrinks dollar-for-dollar once total startup spending exceeds $50,000 and disappears entirely at $55,000. Whatever you can’t deduct immediately is amortized over 180 months.4Office of the Law Revision Counsel. 26 US Code 195 – Start-up Expenditures Owners who spend $60,000 on pre-opening administrative setup expecting a full first-year deduction get caught by this rule regularly.

Costs That Look Administrative but Aren’t Fully Deductible

Several categories of spending look like ordinary overhead but are partially or fully disallowed:

Misclassification carries teeth. If the IRS finds that treating a cost as an immediately deductible administrative expense (when it should have been capitalized into inventory or disallowed outright) led to underpayment, the accuracy-related penalty is 20% of the underpaid amount, plus daily interest.7Internal Revenue Service. Accuracy-Related Penalty

Benchmarking Administrative Costs by Industry

Knowing what “normal” looks like tells you whether your list of administrative costs adds up to too much. The most common benchmark is SG&A as a percentage of revenue: total SG&A divided by net sales, times 100.

Industry variation is wide. Based on January 2026 data from public companies:

  • Software (systems and applications): roughly 24%
  • Pharmaceutical companies: roughly 22%
  • Retail (general): roughly 21%
  • Food processing: roughly 12%
  • Oil and gas (integrated): roughly 9%
  • Auto and truck manufacturing: roughly 6%
  • Total market average: roughly 16%

A software company at 24% isn’t overspending compared to an oil producer at 9%. Software has almost no COGS, so a larger share of total spending naturally falls into SG&A. Capital-intensive industries push more costs into production and depreciation, leaving a thinner administrative layer. The useful comparison is against direct peers and against your own trend. An SG&A ratio that climbed from 18% to 25% over three years while competitors held at 17% points to something worth investigating: headcount creep in support functions, underutilized office space, software subscriptions that multiplied without review, or professional fees that grew with complexity rather than with revenue.