Selling, general, and administrative expenses (SG&A) include every operating cost a business incurs outside of producing its goods or delivering its core services. On the income statement, that means sales and marketing spending on the selling side, plus corporate overhead like rent, non-sales payroll, insurance, professional fees, depreciation on office assets, and bad debt on the general and administrative side. What goes into SG&A is defined as much by what stays out: cost of goods sold, research and development, interest, and income taxes each sit on their own lines.
What Selling Expenses Cover
Selling expenses are the costs of finding customers and getting products to them. Advertising and marketing make up a large share, including paid search, social media, and promotional partnerships. Sales compensation belongs here too, typically a mix of base salary and commissions that commonly run between 5% and 20% of contract value depending on the industry and deal size. Pay structure can trigger federal wage rules: under the Fair Labor Standards Act, non-exempt sales staff must receive overtime pay at one-and-a-half times their regular rate for hours worked beyond 40 in a workweek.1U.S. Department of Labor. Wages and the Fair Labor Standards Act
Logistics costs also land in selling. Freight and shipping charges, warehousing fees for finished goods awaiting delivery, and travel expenses that sales representatives incur on the road (airfare, hotels, meals) all belong in this bucket. The common thread is a direct connection to revenue generation. If the cost disappears when the company stops selling, it’s a selling expense.
What General and Administrative Expenses Cover
General and administrative (G&A) expenses are the costs of running the company regardless of sales volume. They tend to be stickier than selling costs because they’re tied to the corporate structure itself rather than to specific deals or campaigns.
Facilities, Insurance, and Office Costs
Corporate office rent is usually the single largest G&A line, often locked in through multi-year commercial leases. Utilities, high-speed internet, and everyday office supplies and software sit alongside it. Insurance premiums for general liability and workers’ compensation round out the category, covering lawsuits, workplace injuries, and property damage.2Defense Contract Audit Agency. NAF Accounting Working Group Workers Compensation Classification Position Paper 18
Payroll and Benefits for Non-Sales Staff
Salaries for employees who don’t directly generate revenue land in G&A: human resources, accounting, legal, IT support, and executive leadership. On top of base pay, employers owe their share of payroll taxes. The employer portion of Social Security and Medicare runs 7.65% of each employee’s wages (6.2% for Social Security and 1.45% for Medicare), plus federal unemployment tax at a net rate of roughly 0.6% after credits. Health insurance contributions, retirement plan matching, and fringe benefits like commuter subsidies (up to $340 per month for qualified parking or transit passes in 2026) all add to the administrative payroll burden.3Internal Revenue Service. Household Employers Tax Guide
Professional Services and Depreciation
Fees paid to outside accountants, auditors, attorneys, and consultants fall into G&A. For a mid-sized company, annual audit fees alone can run tens of thousands of dollars. Depreciation and amortization on non-production assets belong here as well. When a company buys office furniture, computer equipment, or enterprise software, the cost gets spread over the asset’s useful life, and the annual depreciation charge shows up in G&A rather than in cost of goods sold.
Bad Debt Expense
When a company sells on credit and some customers don’t pay, the estimated losses get recorded as an expense on the income statement. Under accrual accounting, this estimate is booked in the same period as the original sale so that revenue and the associated risk of non-collection appear together. The offsetting entry creates a contra-asset called the allowance for doubtful accounts, which reduces the reported value of accounts receivable on the balance sheet.
What SG&A Does Not Include
Knowing what falls outside SG&A matters as much as knowing what’s inside. Misclassifying a cost between SG&A and another category can distort profit margins and mislead investors.
Cost of Goods Sold
Cost of goods sold (COGS) captures the direct costs of producing whatever the company sells: raw materials, direct labor on the factory floor, and factory-related overhead like equipment depreciation and rent for manufacturing space. The line matters for tax purposes too. Under the uniform capitalization rules of IRC Section 263A, businesses that produce goods or purchase inventory for resale must capitalize direct costs and a proper share of indirect costs into inventory rather than deducting them immediately as period expenses.4Office of the Law Revision Counsel. 26 USC 263A – Capitalization and Inclusion in Inventory Costs of Certain Expenses The regulations specifically carve out marketing, selling, advertising, and distribution costs from that capitalization requirement, confirming that those expenses stay in SG&A and are deducted as incurred.5eCFR. 26 CFR 1.263A-1 – Uniform Capitalization of Costs
Research and Development
R&D costs occupy their own line under U.S. GAAP. Accounting standards require that R&D spending be expensed as incurred and disclosed separately, either as a standalone line item or in a note to the financial statements.6Internal Revenue Service. IRC 41 ASC 730 Research and Development Costs General and administrative costs that aren’t clearly related to R&D activities stay in SG&A. The distinction matters because R&D carries its own tax treatment, and combining the two would obscure how much a company invests in innovation.
Interest and Income Taxes
Interest payments on corporate debt and income tax liabilities are non-operating items. They reflect a company’s capital structure and tax obligations rather than the efficiency of day-to-day operations. Keeping them out of SG&A is what allows operating income to work as a clean measure of how the core business performs before financing decisions and tax strategy come into play.
Where Book SG&A and Tax Deductions Diverge
Not every dollar recorded as SG&A on the income statement translates into a dollar of tax deduction. IRC Section 274 places hard limits on several common categories, and those limits create permanent differences between book expense and taxable expense.
Entertainment and Club Dues
Business entertainment is completely non-deductible. Taking a client to a sporting event, a concert, or a round of golf produces zero tax benefit regardless of how much business gets discussed. Club dues for any organization run for business, social, or recreational purposes are likewise non-deductible.7Office of the Law Revision Counsel. 26 USC 274 – Disallowance of Certain Entertainment, Etc., Expenses These costs still appear in SG&A on the financial statements.
Business Meals
Meals with a business purpose are deductible at 50% of actual cost. That applies whether you’re dining with a client, eating alone on a business trip, or using a per diem allowance.7Office of the Law Revision Counsel. 26 USC 274 – Disallowance of Certain Entertainment, Etc., Expenses A few narrow exceptions allow a full deduction, such as food provided on the business premises primarily for employees or meals treated as taxable compensation to the recipient.
Business Gifts
The deduction for business gifts is capped at $25 per recipient per year. That limit hasn’t been adjusted for inflation since enactment, so it catches many businesses off guard. Branded promotional items costing $4 or less and point-of-sale display materials given to a customer for use at their own location don’t count toward the cap.8Office of the Law Revision Counsel. 26 USC 274 – Disallowance of Certain Entertainment, Etc., Expenses
For travel, meals, gifts, and listed property like vehicles, IRC Section 274(d) blocks the deduction entirely unless the taxpayer can document the amount, the time and place, the business purpose, and the business relationship of the person who benefited.7Office of the Law Revision Counsel. 26 USC 274 – Disallowance of Certain Entertainment, Etc., Expenses Contemporaneous receipts and logs are the standard; records reconstructed after the fact rarely survive IRS scrutiny.
How SG&A Shows Up on the Income Statement
SG&A sits below gross profit and above operating income. Revenue minus COGS equals gross profit, then gross profit minus SG&A and any other operating expenses like R&D equals operating income. That operating income figure is sometimes called EBIT, though the two aren’t always identical depending on how a company classifies certain items.
For public companies, SEC Regulation S-X requires “selling, general and administrative expenses” as a named line item on the income statement, along with a separate line for the provision for doubtful accounts and another for any material expenses not normally included in SG&A.9GovInfo. Securities and Exchange Commission Regulation S-X 210.5-03 The underlying statements must follow U.S. GAAP, and filings that fail to comply are presumed inaccurate or misleading.10U.S. Securities and Exchange Commission. Financial Reporting Manual – Topic 1 – Registrants Financial Statements
Some companies report a single consolidated SG&A number. Others break out subcategories in the notes, splitting selling from G&A or disclosing specific items like stock-based compensation embedded within SG&A. Comparing companies means checking whether they define the line the same way. One company might place depreciation of non-production assets inside SG&A while another reports it on a separate depreciation line, and those classification differences can make direct comparisons misleading unless you read the notes.