what is billable expense income as features that grant clients to get compensated for their expenses including purchases, mileage, billable time, and subcontracted work. We plunked down with everything considered, turned on the parts, and changed their work cycles to give them another comprehension of their compensation and expenses
Billable expense income is an important distinction for tax purposes. In layman’s terms, proper categorization of billable expense income could affect the small business tax deductions a company can take on their annual tax filing. In this article, we’ll expand on this concept and outline some best practices for tracking billable expense income.
What is billable expense income?
Billable expense income is revenue that is generated by purchases made on behalf of a third-party client or customer. A common example of this is the items that a caterer purchases to put on an event for your company. The caterer pays for the trays and burners, then itemizes those expenses on your invoice—that portion of the invoice is billable expense income.
Research and planning expenses
Offering your company’s services to a client is only the first step. Once the contract is signed, there may be a certain amount of research and planning required to fulfill your business obligations. Those both come with a cost, which includes time and labor. A best practice in this case is to itemize research and planning as a billable expense on your invoices.
An example of this is the research and meetings a freelance copywriter needs to do before they can start writing for a client. Many freelancers, since they’re independent and try to run lean, neglect the itemization and fail to classify research as a billable expense, opting instead to bulk it into a per-page or per-hour rate. However, this increases their tax liability. We’ll explain how below.