---
name: expense-categorization
description: Classify expenses by category, department, and tax deductibility from transaction data. Use when the user requests expense categorization or provides relevant inputs for this workflow.
license: MIT
---

# Expense Categorization

Automatically classify business expenses into accounting categories, assign department cost centers, and flag tax-deductible items from raw transaction data. This skill processes credit card statements, bank feeds, and expense reports to produce clean, categorized output suitable for bookkeeping, tax preparation, and spend analytics.

## Workflow

1. **Receive Expense Data**
   Accept transaction data as CSV, bank statement text, or structured records. Required fields: date, amount, and description or merchant name. Optional fields: card last four digits, employee name, department, receipt notes. Normalize date formats and currency to a consistent standard.

2. **Parse Description and Merchant**
   Extract the merchant name from the transaction descriptor, stripping out authorization codes, location suffixes, and card network prefixes. Map common merchant name variations to canonical names (e.g., "AMZN MKTP US" → "Amazon", "GOOGLE *GSUITE" → "Google Workspace"). Use the merchant category code (MCC) when available as a secondary signal.

3. **Classify Expense Category**
   Assign each transaction to a primary category based on merchant identity, MCC, description keywords, and amount patterns. Standard categories: Travel & Lodging, Meals & Entertainment, Software & SaaS, Office Supplies, Professional Services, Advertising, Utilities, Insurance, Shipping & Postage, Equipment, Training & Education, Miscellaneous.

4. **Assign Department and Cost Center**
   Route each expense to the appropriate department based on the cardholder, project codes in the description, or pre-configured rules. Apply default department assignments for known merchants (e.g., AWS charges → Engineering, HubSpot → Marketing).

5. **Flag Tax-Deductible Items**
   Mark expenses that qualify for tax deduction based on category and business purpose. Apply IRS rules for meals (50% deductible for business meals, 100% for company events), home office, vehicle mileage, and professional development. Flag items that need substantiation — receipts, business purpose memo, or attendee lists.

6. **Generate Categorized Summary**
   Output a categorized transaction list with totals by category, department, and tax status. Highlight any transactions that couldn't be confidently categorized (confidence < 80%) for manual review.

## Usage

Provide transaction data in any tabular format. Specify any custom category mappings, department rules, or tax jurisdiction if not US federal.

**Example prompt:**
> Categorize these November credit card transactions for our 15-person startup. We have Engineering, Marketing, and Operations departments. Flag tax-deductible items. Here's the CSV: [paste transactions]

## Examples

### Example 1: Monthly Credit Card Categorization

**Input (CSV):**
```csv
date,amount,description,cardholder
2024-11-02,249.00,GITHUB TEAM PLAN,Sarah Chen
2024-11-03,1450.00,UNITED AIRLINES 0167823,Mike Torres
2024-11-03,189.50,MARRIOTT HOTEL CHI,Mike Torres
2024-11-05,42.67,UBER TRIP FKJE83,Mike Torres
2024-11-08,156.00,GOOGLE ADS 8834721,Lisa Park
2024-11-12,89.99,ZOOM VIDEO COMMS,Sarah Chen
2024-11-14,67.32,DOORDASH DASHER TIP,Operations
2024-11-18,4200.00,DELL TECHNOLOGIES,Sarah Chen
2024-11-22,350.00,COURSERA BUSINESS,Mike Torres
2024-11-25,23.45,STAPLES #1284,Operations
```

**Output:**

| Date       | Amount    | Merchant         | Category              | Department  | Tax Deductible | Notes                         |
|------------|-----------|------------------|-----------------------|-------------|----------------|-------------------------------|
| 2024-11-02 | $249.00   | GitHub           | Software & SaaS       | Engineering | Yes (100%)     |                               |
| 2024-11-03 | $1,450.00 | United Airlines  | Travel & Lodging      | Engineering | Yes (100%)     | Business travel               |
| 2024-11-03 | $189.50   | Marriott         | Travel & Lodging      | Engineering | Yes (100%)     | Business travel               |
| 2024-11-05 | $42.67    | Uber             | Travel & Lodging      | Engineering | Yes (100%)     | Ground transport              |
| 2024-11-08 | $156.00   | Google Ads       | Advertising           | Marketing   | Yes (100%)     |                               |
| 2024-11-12 | $89.99    | Zoom             | Software & SaaS       | Engineering | Yes (100%)     |                               |
| 2024-11-14 | $67.32    | DoorDash         | Meals & Entertainment | Operations  | Yes (50%)      | Needs business purpose memo   |
| 2024-11-18 | $4,200.00 | Dell             | Equipment             | Engineering | Depreciation   | Section 179 eligible          |
| 2024-11-22 | $350.00   | Coursera         | Training & Education  | Engineering | Yes (100%)     |                               |
| 2024-11-25 | $23.45    | Staples          | Office Supplies       | Operations  | Yes (100%)     |                               |

**Summary:**
| Category              | Total     | % of Spend |
|-----------------------|-----------|------------|
| Equipment             | $4,200.00 | 61.5%      |
| Travel & Lodging      | $1,682.17 | 24.6%      |
| Training & Education  | $350.00   | 5.1%       |
| Software & SaaS       | $338.99   | 5.0%       |
| Advertising           | $156.00   | 2.3%       |
| Meals & Entertainment | $67.32    | 1.0%       |
| Office Supplies       | $23.45    | 0.3%       |
| **Total**             | **$6,817.93** | **100%** |

### Example 2: Flagging Misclassified Expenses

**Input:** Review existing categorizations for accuracy.

**Output — Correction Report:**

| Date       | Amount  | Merchant       | Current Category | Corrected Category     | Reason                                                  |
|------------|---------|----------------|------------------|------------------------|---------------------------------------------------------|
| 2024-11-07 | $320.00 | WeWork         | Office Supplies  | Rent & Facilities      | Co-working space is rent, not supplies                  |
| 2024-11-10 | $85.00  | Blue Apron     | Office Supplies  | Meals & Entertainment  | Meal delivery service miscoded                          |
| 2024-11-16 | $599.00 | Adobe Creative | Training         | Software & SaaS        | Creative Cloud is a software subscription, not training |
| 2024-11-29 | $175.00 | Lyft Business  | Miscellaneous    | Travel & Lodging       | Business ground transportation should be under travel   |

**Impact:** Reclassifying these 4 transactions shifts $1,179.00 across categories, affecting department budgets and tax deduction calculations. The Adobe correction reduces the Training & Education deduction by $599 and increases the Software & SaaS deduction by the same amount.

## Best Practices

- Build and maintain a merchant-to-category mapping dictionary. Start with the 50 most common merchants in your transaction history and expand over time.
- Set a confidence threshold (recommended: 80%) below which transactions are routed for human review rather than auto-categorized.
- Review categorization accuracy monthly — track precision and recall by category to identify systematic errors.
- Always separate personal and business expenses before categorization. Flag transactions from personal merchants (grocery stores, streaming services) for review.
- Apply consistent rules for edge cases like meals during travel (Travel vs. Meals) and document the policy.
- Keep tax deductibility rules current with the applicable tax year — IRS rules change frequently for categories like meals, entertainment, and vehicle expenses.

## Safety Boundaries

- Treat the output as analytical support, not individualized financial, tax, investment, or accounting advice.
- Preserve source data and expose assumptions, formulas, units, and reconciliation checks so a reviewer can reproduce the result.
- Do not initiate payments, transactions, journal entries, filings, or account changes without explicit user authorization.
- Require a qualified professional to review material decisions, regulated filings, or conclusions based on incomplete data.

## Edge Cases

- **Split transactions:** A single purchase at a warehouse store may include both office supplies and snacks. If the receipt is available, split into separate line items with distinct categories.
- **Foreign currency transactions:** Categorize based on the merchant and purpose, not the currency. Record both the original currency amount and the converted amount. Watch for duplicate entries from currency conversion fees.
- **Refunds and chargebacks:** Match refunds to the original transaction and apply the same category as a negative entry. Don't create a new "refund" category — it distorts spend analytics.
- **Recurring vs. one-time:** Identify recurring charges (same merchant, similar amount, monthly cadence) and flag any that stop unexpectedly or change amount by more than 10%.
- **Ambiguous merchants:** When a merchant name maps to multiple possible categories (e.g., Amazon could be office supplies, software, or equipment), use the amount and cardholder's department as tiebreakers. Amounts under $100 from Amazon default to Office Supplies; over $500 default to Equipment.