General and administrative expenses, usually shortened to G&A, are the overhead costs a business pays to keep itself running as an organization — separate from making its products and separate from selling them. G&A expenses cover things like corporate rent, executive and back-office salaries, general liability insurance, audit and legal fees, and administrative software. They support the whole entity rather than any single product line or sales campaign, and they hit the income statement in the period they’re incurred.
What Counts as a G&A Expense
The largest piece is almost always people. Salaries, bonuses, and benefits for executives, accountants, HR staff, legal counsel, and other employees who serve the whole company belong in G&A. A factory-floor machinist’s wages are production costs, but the payroll manager who processes everyone’s checks is G&A.
Facility costs for the corporate headquarters or any non-production office space also sit here: rent or mortgage payments, utilities, property taxes, and depreciation on the building itself. General liability and directors-and-officers insurance premiums qualify too, because those policies protect the entire entity rather than a specific product.
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 follow the same logic: office supplies, postage, administrative software subscriptions, and routine maintenance on office equipment. The common thread is that cutting any one of these wouldn’t stop production or sales tomorrow, but the business would eventually become unmanageable without them.
How G&A Differs From COGS and Selling Expenses
Classifying an expense correctly determines where it lands on the income statement and how it affects profitability. The test comes down to one question: does the cost directly serve production, directly serve the sales effort, or support the business as a whole?
Cost of Goods Sold
Cost of goods sold 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 from G&A 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 anything sold or not.
Selling Expenses
Selling expenses exist to win and fulfill customer orders. Sales commissions, advertising campaigns, trade show travel, shipping costs to get products to buyers, and the salaries of the sales team all belong here. The test is intent. An advertising spend is designed to generate revenue; the cost of 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.
The Residual Test
G&A functions as the catch-all 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 entire cost stays in G&A. The annual external audit is a textbook example: it serves the interests of 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 come in.
Many public companies combine selling and G&A into a single line item labeled “Selling, General, and Administrative Expenses,” or 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 SG&A to total revenue over time. A ratio that creeps upward while revenue stays flat signals that overhead is growing faster than the business, which usually triggers hard questions from investors.
Interest and Financing Costs Are Not G&A
A common classification mistake is lumping 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 shows up 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.
Classifying Software and Technology Costs
Software subscriptions have become one of the trickier classification calls. 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 your customers immediately lose access to your product or service quality degrades within days, that cost is production-related. If the internal team loses a convenience but customers notice nothing, it’s administrative overhead. Your cloud hosting bill for the customer-facing application is COGS. Your HR management platform and internal accounting software are G&A. The enterprise Slack subscription that keeps everyone communicating? G&A. Getting this right matters because misallocating software costs between COGS and G&A will skew your gross margin, and gross margin is the metric investors scrutinize most closely.
Tax Treatment of G&A Expenses
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 — 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 “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 further.3Office of the Law Revision Counsel. 26 USC 162 – Trade or Business Expenses – Section (m)
How G&A Deductions Appear on a Corporate Return
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.
Typical G&A Ratios by Industry and Stage
How much G&A is “normal” depends heavily on industry and the maturity of the business. Manufacturing companies, which concentrate spending on production, tend to run G&A ratios between 5% and 12% of revenue. Technology companies fall in the 8% to 15% range, partly because their production costs are lower and their administrative infrastructure — compliance, IP management, stock-based compensation accounting — is heavier. Professional services firms often see G&A between 15% and 25% of revenue, because the line between delivering the service and running the firm blurs more easily when your product is people’s time.
Company age matters just as much. Early-stage businesses routinely run G&A ratios of 20% to 40% because fixed overhead gets spread across a small revenue base. You still need an accountant, a lease, and insurance even when revenue is modest. As revenue scales, the ratio compresses. Growth-stage companies typically land between 12% and 20%, while mature companies settle in the 6% to 12% range. Public companies tend to run 2 to 4 percentage points higher than comparable private companies because of the additional compliance, investor relations, and governance costs that come with being publicly traded.
Comparing your ratio to these ranges is a useful sanity check, but context matters. A company investing in a new ERP system will see a temporary spike. A company that just went public will see a permanent step-up. The trend over time tells you more than any single quarter’s number.