Administrative Cost Examples: Categories, Taxes, and Benchmarks

Administrative cost examples include executive and back-office salaries, corporate office rent and utilities, legal and accounting fees, general liability insurance, HR and IT operations, office supplies, and depreciation on office equipment. These are the expenses of running the organization itself, as opposed to making the product (which belongs in Cost of Goods Sold) or selling it (which belongs in selling expense). On the income statement, administrative costs sit inside Selling, General, and Administrative (SG&A) and reduce operating profit directly.

The Test That Separates Administrative Costs From Everything Else

A cost is administrative when it supports the overall management and infrastructure of the business rather than the production of goods or the generation of sales. The finance team processing payroll, HR onboarding employees, and the legal team reviewing contracts don’t build inventory or close deals, 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, regardless of how many units you produced or sold. That is the fundamental split from COGS, which attaches to inventory: raw materials, factory labor, and manufacturing overhead stay on the balance sheet as an asset until the product sells. Administrative costs never touch inventory. The IRS draws the same line, treating ordinary 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 split from selling costs is just as important, because the two get bundled together inside SG&A. Selling costs exist to generate revenue; administrative costs exist to run the organization. A sales rep’s commission is a selling cost. The salary of the controller who cuts that commission check is administrative. Advertising, trade show fees, promotional materials, and sales travel are selling. Executive pay, audit fees, corporate rent, and compliance are administrative.

Why bother separating them? Because they signal different things. Rising selling costs alongside rising revenue can be healthy — the company is spending to grow. Rising administrative costs with flat revenue is a warning that overhead is bloating with no payoff.

Examples by Category

People

Compensation for non-production staff is the largest administrative line at most companies. It covers salaries for the CEO, CFO, general counsel, and their support teams; HR staff; administrative assistants; and the internal accounting department. The related benefits — health insurance premiums, retirement plan contributions, and payroll taxes on those salaries — belong here too.

Training and professional development for administrative staff count as well. Sending the finance team to a continuing education seminar is an administrative cost, not a selling or production expense.

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 such as electricity, gas, water, and internet service
  • Office supplies — paper, toner, postage
  • Depreciation on office furniture, computers, and equipment used by administrative staff

One nuance: if a 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, usually by square footage. Only the administrative portion is an administrative expense.

Outside Services and Compliance

External professional fees make up a significant share of administrative spending, especially at larger companies:

  • Legal fees for corporate governance, contract review, and intellectual property maintenance
  • Audit and accounting fees paid to outside CPA firms for annual financial statement reviews
  • 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 Securities and Exchange Commission or state business divisions2eCFR. 17 CFR Part 230 – Filings, Fees, Effective Date

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

Where These Costs Appear on the Income Statement

Administrative costs sit inside the Operating Expenses section of the income statement. Most companies group them with selling expenses under a single SG&A line. The arithmetic:

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 scrutiny from investors and analysts.

Some companies break out general and administrative (G&A) as a separate line from selling expenses, making analysis easier. Others combine everything into one SG&A figure, so you have to dig into the footnotes for a breakdown. If you’re comparing companies, check whether their SG&A presentations line up before drawing conclusions.

Tax Treatment of Administrative Expenses

Most administrative expenses are deductible in the year you pay them if they meet the “ordinary and necessary” standard. An ordinary expense is common in your industry; a necessary expense is helpful and appropriate for your business. The statute specifically lists reasonable salaries, business travel (including meals and lodging that aren’t extravagant), and rent as deductible categories.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.

Several categories that look administrative are partially or fully disallowed:

Startup Costs Get Special Treatment

Administrative expenses incurred before the business officially opens — market research, employee training, scouting locations — follow a separate rule. You can deduct up to $5,000 of these startup costs in the year the business begins, but that $5,000 allowance shrinks dollar-for-dollar once total startup spending exceeds $50,000 and disappears entirely at $55,000. Whatever can’t be deducted immediately gets spread over 180 months (15 years).6Office of the Law Revision Counsel. 26 US Code 195 – Start-up Expenditures This catches a lot of new owners off guard: they spend $60,000 on administrative setup and discover they must amortize the full amount over 15 years rather than deducting it right away.

Nonprofit and Federal Grant Situations Follow Different Rules

If you run a tax-exempt organization, administrative costs don’t just sit in SG&A — Form 990, Part IX requires you to report expenses across three functional categories (Program Services, Fundraising, and Management and General), with administrative items landing in Management and General.7Internal Revenue Service. 2025 Instructions for Form 990 Return of Organization Exempt From Income Tax Executive oversight, board meetings not tied to specific programs, general legal and audit fees, office management, general liability insurance, and investment management expenses all belong there, and donors and watchdogs track the ratio of Management and General to total spending closely.

Organizations receiving federal grants face a further wrinkle: administrative overhead is reimbursed through an indirect cost rate. Those that have never negotiated a rate can elect a de minimis rate of up to 15% of modified total direct costs and must then apply it to all federal awards until a formal rate is negotiated.8eCFR. 2 CFR 200.414 – Indirect Costs

What Normal Looks Like: Benchmarks by Industry

SG&A as a percentage of revenue is the standard benchmark. Based on January 2026 data compiled 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%. They are in fundamentally different businesses. Software has almost no cost of goods sold, so a larger share of total spending falls into SG&A by default. Capital-intensive industries push more costs into production and depreciation, leaving a thinner administrative layer on top.

The useful comparison is against your own industry peers and your own trend. If your SG&A ratio climbed from 18% to 25% over three years while competitors held at 17%, something in the administrative structure deserves a look. Common culprits: headcount creep in support functions, underutilized office space, software subscriptions that multiplied without review, and professional service fees that grew with complexity rather than revenue.