G&A expenses in accounting — general and administrative expenses — are the overhead costs a business pays to keep itself running as a whole, separate from the costs of making its products or closing sales. Think rent on the corporate office, the CFO’s salary, the annual audit fee, and liability insurance. These costs don’t tie to any single product line or sales campaign. They support the entire organization, and they hit the income statement in the period they’re incurred rather than waiting for a sale to happen.
What Counts as a G&A Expense
G&A covers what a business spends to manage itself rather than to produce goods or chase revenue. The largest chunk is usually people: salaries, bonuses, and benefits for executives, accountants, HR staff, legal counsel, and other employees who serve the whole company rather than one department. A factory-floor machinist’s wages belong in production costs. The payroll manager who processes everyone’s checks is G&A.
Facility costs for the corporate headquarters or any non-production office space also fall here. Rent or mortgage payments, utilities, property taxes, and depreciation on the building itself. So do general liability and directors-and-officers insurance premiums, because those policies protect the entire entity.
Professional services round out the category. Annual audit fees, outside legal counsel for corporate governance, tax preparation, and regulatory compliance work are all G&A. Smaller line items belong here too: office supplies, postage, administrative software subscriptions, and routine maintenance on office equipment. The common thread is that removing any of these costs wouldn’t stop production or sales in the short term, but would eventually make the business unmanageable.
How G&A Differs from Production and Selling Costs
Classifying an expense correctly determines where it lands on the income statement and how it affects profitability. The question to ask is simple: does this cost directly serve production, directly serve the sales effort, or support the business as a whole?
Cost of Goods Sold
Cost of goods sold (COGS) captures everything spent to create the product or service you sell. Raw materials, wages for assembly-line workers, factory rent, and depreciation on manufacturing equipment all qualify. The key accounting difference is timing. Production costs get bundled into inventory on the balance sheet and only hit the income statement when the finished product sells. G&A expenses are period costs; they hit the income statement in the quarter they’re incurred, whether or not anything sold that quarter.
Selling Expenses
Selling expenses exist to win and fulfill customer orders. Sales commissions, advertising campaigns, trade show travel, shipping to buyers, and the salaries of your sales team all belong in this bucket. The test is intent. Advertising is designed to generate revenue; running your internal payroll system supports the entire company. If you can draw a straight line from the expense to a specific revenue-generating activity, it’s a selling expense, not G&A.
The Catch-All Test
G&A functions as the residual for operating costs that don’t clearly belong in production or sales. Your corporate accounting department benefits the factory, the sales team, and every other division. Allocating its cost across each function would be complex and somewhat arbitrary, so the whole department stays in G&A. The annual external audit is a textbook example: it serves the whole entity, not any single revenue stream.
Where G&A Shows Up on the Income Statement
On the income statement, G&A sits below the gross profit line. Gross profit equals net revenue minus cost of goods sold. From there, G&A and selling expenses are subtracted as operating expenses. The result is operating income, frequently called EBIT (earnings before interest and taxes), which shows how much profit the core business generates before financing costs or taxes enter the picture.
Many public companies combine selling and G&A into a single line item labeled “Selling, General, and Administrative Expenses” (SG&A) in their external financial statements. If you’re reading an annual report and don’t see G&A broken out separately, look for the SG&A line. Analysts watch the ratio of G&A (or SG&A) to total revenue over time. A ratio that creeps upward while revenue stays flat signals overhead growing faster than the business.
Interest Is Not a G&A Expense
A common classification mistake is putting interest payments on loans or lines of credit into G&A. Interest expense is a financing cost, not an operating cost. It reflects decisions about how the business funds itself, through debt versus equity, rather than how it runs day-to-day. On the income statement, interest sits below the operating income line, which is exactly why operating income is called earnings before interest and taxes. Including interest in G&A would inflate operating expenses and distort the picture of how efficiently the core business runs.
Software and Technology: COGS or G&A?
Software subscriptions have become one of the trickier classification calls for modern businesses. The rule stays the same as with any other expense. If the software directly delivers your product to customers, it belongs in COGS. If it supports internal operations, it’s G&A.
A useful test is to ask what happens if you cancel the subscription tomorrow. If customers immediately lose access to your product or quality degrades within days, that cost is production-related. If the internal team loses a convenience but customers notice nothing, it’s administrative overhead. Cloud hosting for your customer-facing application is COGS. Your HR management platform and internal accounting software are G&A. The enterprise Slack subscription that keeps everyone talking? G&A. Getting this right matters because misallocating software costs between COGS and G&A will skew gross margin, and gross margin is the metric investors scrutinize most closely.
Are G&A Expenses Tax-Deductible?
Nearly all G&A expenses are tax-deductible as ordinary and necessary business expenses. The federal tax code allows a deduction for any expense that’s common in your industry and helpful to running your business, including reasonable compensation for employees, rent on business property, and other routine costs.1Office of the Law Revision Counsel. 26 USC 162 – Trade or Business Expenses That language is broad enough to cover the full range of G&A. Office rent, insurance premiums, professional fees, supplies, and salaries all qualify as long as the amounts are reasonable and the expenses genuinely relate to the business.
The IRS provides specific guidance on several common G&A items. Rent on business property is deductible as long as you don’t have or aren’t acquiring an ownership interest in it. Business utility costs for heat, electricity, phone service, and water are deductible, though any personal-use portion must be excluded. Insurance premiums covering fire, theft, liability, malpractice, and workers’ compensation are all deductible. Legal and accounting fees are deductible when they relate to operating the business, but fees for acquiring business assets get added to the cost basis of that asset instead.2IRS. Publication 535 – Business Expenses
The Executive Compensation Cap
One major limit catches publicly traded companies. For any covered executive — the CEO, CFO, and the next three highest-paid officers — the company can only deduct the first $1 million of that person’s total annual compensation. Everything above that threshold is a real cost to the business but generates no tax benefit. The rule also has a sticky “once covered, always covered” feature: anyone who was a covered employee after 2016 stays subject to the cap even after leaving the role. Starting in tax years after December 31, 2026, the definition of covered employee expands to include the five highest-paid employees beyond those top officers, widening the cap’s reach.3Office of the Law Revision Counsel. 26 USC 162 – Trade or Business Expenses – Section (m)
How G&A Deductions Appear on Form 1120
On IRS Form 1120, the corporate income tax return, G&A expenses are spread across several dedicated line items rather than reported as a single figure. Officer compensation has its own line, as do salaries and wages, rents, taxes and licenses, depreciation, and employee benefit programs. Anything that doesn’t fit a named category goes on the “other deductions” line with a supporting statement attached.4IRS. Form 1120 – U.S. Corporation Income Tax Return The clean G&A total from your internal accounting system gets disaggregated for tax purposes, and your accountant maps each internal G&A category to the correct Form 1120 line.