SG&A expenses include every cost of running a business that isn’t tied to actually producing its goods or services. On the selling side, that means marketing and advertising, sales salaries and commissions, and sales travel. On the general and administrative side, it means executive pay, back-office salaries in HR, legal, finance, and IT, corporate rent, insurance, professional fees, utilities, and software subscriptions. These are period costs, so they hit the income statement in the quarter or year they occur rather than getting absorbed into inventory.
What Counts as a Selling Expense
The “S” captures every cost tied to getting products in front of customers and closing the deal. Marketing and advertising are usually the biggest line items, from digital ad campaigns to trade show booths. Sales team salaries, commissions, and benefits all sit here, including managers who oversee the team but don’t personally call on clients.
Travel costs for salespeople visiting prospects or attending industry events also count. For 2026, the IRS sets the standard mileage rate for business driving at 72.5 cents per mile, which gives companies a straightforward way to reimburse road warriors without tracking every gas receipt.1Internal Revenue Service. 2026 Standard Mileage Rates Client meals qualify too, though only 50% of the cost is deductible for tax purposes.2Internal Revenue Service. Publication 463 (2025), Travel, Gift, and Car Expenses
Commissions create variable selling costs that swing with revenue. When a company pays commissions or bonuses, those payments count as supplemental wages. Federal withholding on supplemental wages is 22% for amounts up to $1 million per employee per year and jumps to 37% above that threshold.3Internal Revenue Service. Publication 15 (2026), (Circular E), Employers Tax Guide The withholding rate is a payroll mechanic; the full commission still shows up as a selling cost on the income statement.
What Counts as General and Administrative
The “G&A” side covers the back-office infrastructure that keeps the company functioning regardless of how many units it sells. Executive compensation for the CEO, CFO, and other leadership sits here, along with salaries for human resources, legal, finance, and IT staff. Corporate office rent is typically one of the largest fixed costs in this category.
Other common G&A line items include professional fees for outside legal counsel and auditors, business insurance premiums, office supplies, utilities, and software subscriptions. Annual business registration and licensing fees also fall here. Cloud-based software subscriptions that companies pay monthly or annually are generally expensed as they’re incurred, just like rent or utilities. If a company spends significant money on the implementation phase of a cloud platform, such as custom coding, configuration, and integration work, those costs get capitalized as a prepaid expense and amortized over the contract term rather than expensed all at once.
The line that trips people up is between G&A and production costs. Rent for a factory or warehouse where products are manufactured belongs in cost of goods sold, not SG&A. The same goes for salaries of employees who work on the production floor. The dividing question is always whether the cost would exist even if the company made zero products. If the answer is yes, it’s almost certainly SG&A.
Depreciation, Amortization, and Stock Compensation
These three items cause the most confusion because their placement depends on what the underlying asset or employee does. Depreciation on office furniture, corporate vehicles, and headquarters buildings belongs in SG&A. Depreciation on manufacturing equipment does not; that goes into cost of goods sold. The same asset type can land in different categories depending on how it’s used.
Stock-based compensation follows the same logic. The SEC has pushed companies to allocate stock compensation across the same income statement lines where they’d record equivalent cash compensation. If a sales director receives stock options, that expense goes into selling costs. If a CFO receives restricted stock, that expense goes into G&A. Companies cannot lump all stock-based compensation into a single separate line item on the income statement, though they can disclose the allocation in footnotes or in management discussion.
Amortization of intangible assets like patents or customer lists works the same way. If the intangible relates to selling activity, it’s a selling expense. If it supports general operations, it’s G&A. None of these items are automatically excluded from SG&A. They just need to be allocated to the right function.
What Stays Out of SG&A
Several major cost categories sit on the income statement but not on the SG&A line.
- Cost of goods sold. Direct materials, direct labor, and manufacturing overhead used to produce inventory are reported above the gross profit line. This separation is what makes gross margin a meaningful number.4Corporate Finance Institute. Period Costs – Definition, Example, vs Product Costs
- Research and development. R&D represents investment in future products rather than the cost of running today’s operations. Most companies report it as its own line item between gross profit and operating income.
- Interest expense. Payments on corporate debt are non-operating and appear below the operating income line. Including them in SG&A would distort comparisons between companies with different capital structures.4Corporate Finance Institute. Period Costs – Definition, Example, vs Product Costs
- Income taxes. Tax expense is determined by pre-tax profit rather than by operational activity, so it sits near the bottom of the income statement.
- Capitalized expenditures. When a company buys equipment or makes improvements that extend an asset’s useful life, those costs go on the balance sheet and are depreciated over time rather than expensed immediately.
Entertainment spending is a separate wrinkle. Sporting events, concerts, and golf outings are not deductible at all for tax purposes, even when a company records them as a selling or G&A cost for book purposes. Companies that lump entertainment into their SG&A reporting need to separate it out at tax time.
When a Purchase Gets Expensed vs. Capitalized
Not every purchase automatically hits SG&A in the year you buy it. The IRS provides a de minimis safe harbor that lets businesses expense tangible property purchases at or below $5,000 per item if the company has audited financial statements, or $2,500 per item if it does not.5Internal Revenue Service. Tangible Property Regulations – Frequently Asked Questions A $1,200 office chair gets expensed as G&A in the period you buy it. A $15,000 server goes on the balance sheet as a capital asset and depreciates over several years, with only the annual depreciation amount flowing into SG&A.
Aggressive expensing inflates SG&A and reduces reported operating income in the current year, while capitalizing spreads the impact over time. Auditors and the IRS both scrutinize companies that appear to park large purchases in the wrong category.
Where SG&A Sits on the Income Statement
On a multi-step income statement, SG&A sits directly below the gross profit line. Subtract SG&A, along with any separately reported depreciation, amortization, or R&D, from gross profit, and you arrive at operating income. That figure tells you whether the company’s core business is profitable before financing costs and taxes enter the picture.
Public companies detail SG&A in their annual 10-K filings, and the SEC requires that these figures be recorded in a way that accurately reflects the company’s transactions and asset dispositions.6Securities and Exchange Commission (SEC). Recordkeeping and Internal Controls Provisions Section 13(b) of the Securities Exchange Act of 1934 Some companies break SG&A into separate selling and G&A lines. Others combine them into one. Either presentation is acceptable as long as the totals are consistent and material items are disclosed.