What expense category is Security Guard Services?

Protecting business assets, property, and personnel is a fundamental responsibility for any business owner. Hiring security guard services, whether for a retail location, an office building, or a special event, is a common and necessary measure to ensure safety and prevent loss.

For tax purposes, the costs of these professional services are considered ordinary and necessary business expenses and are fully deductible. This guide explains how to categorize these costs, the important distinctions to make, and how to track them for proper tax compliance.

Security Guard Services Category

The fees you pay for security guard services are deductible business expenses. While the IRS does not provide a specific line item for Security Services, these costs generally fall into one of two categories, depending on your arrangement:

1. Contract Labor: If you hire an individual as an independent contractor to provide security, the payments are made through this channel.
2. Other Expenses: If you hire a third-party security company, the fees paid are deducted as a general business expense. On your books, this would be categorized under an account like Security Services or Professional Services.

Important Considerations When Classifying Security Guard Services

The most critical factor in classifying security costs is distinguishing between paying for a service and buying a capital asset.

Security Services vs. Security Systems

• Security Guard Services (Deductible Now): Payments made to a company or individual for providing guard services are a current operating expense.
• Security Systems (Capitalized): The cost of purchasing and installing a security system, including cameras, alarms, and access control hardware, is a capital expenditure. As explained in IRS Publication 946, these are assets with a useful life of more than one year and must be capitalized and depreciated over time.

Contracted Service vs. Employee

How you engage your security personnel has significant tax implications.

• Hiring a Security Company: When you pay a third-party firm, you are paying for a professional service. This is a standard business expense.
• Hiring a Guard as an Employee: If you hire a guard directly as an employee, their pay is a Wage expense. You are then responsible for all employment taxes, as detailed in IRS Publication 15.
• Hiring a Guard as an Independent Contractor: If you hire an individual as an independent contractor, you deduct their pay as Contract Labor. You may also be required to issue them a Form 1099-NEC if you pay them $600 or more in a given year.

Tax Implications and Recordkeeping

To deduct the cost of security guard services, you must report them correctly and maintain the required documentation.

How to Report the Deduction

For a sole proprietor filing a Schedule C (Form 1040):

• Fees paid to a security company are reported under Part II, Line 27a, Other Expenses.
• Payments to an independent contractor for security are reported on Line 11, Contract Labor.
• Wages paid to a security guard hired as an employee are reported on Line 26, Wages.

What Records to Keep

You must have documentary evidence to substantiate your expenses. Your records should include:

• The signed contract or service agreement with the security provider.
• Invoices from the security company or individual contractor.
• Proof of payment, such as canceled checks or credit card statements.

How Fyle Can Automate Tracking for Security Guard Services

Fyle simplifies the process of managing payments to security vendors, ensuring every invoice is captured, coded, and ready for tax time.

• Centralized Invoices: Have your security provider email invoices directly to Fyle for automatic and accurate data capture.
• Track by Location or Event: Code security costs to a specific store, office, or event for precise cost allocation and analysis.
• Create a Clear Audit Trail: Fyle consolidates the service contract, invoices, and proof of payment into a single, easily accessible digital record.
• Automate Your Accounting: Sync the categorized security expense directly to the correct GL account in QuickBooks, Xero, NetSuite, or Sage Intacct.