How To Track Business Expenses [Ultimate Guide]

Life has priorities. In the duration of your existence, you will have things that you obviously want to do more than other things. You all know what I am talking about. Watch The Office for the eighteenth time on Netflix before it's taken off. Endlessly scroll Facebook to satisfy your never-ending thirst for new memes. Winning the lottery to buy a magnetic-floating bed that you never have to leave (yes, this does exist). Some of you may have more proactive goals. Starting your own small business. Improve your personal cash flow and leave the eternal 9-5 grind. Kudos to you proactive business owners and freelancers for working hard to achieve independence! And I guess kudos to you guys who also fall into the first categories I mentioned, I mean at least you have goals!

Now let me list off some things that have not reason being on anyone's top goal list. Ever. Researching accounting software. Learning better on how to track business expenses. Figuring out how to file taxes with the IRS. If you have these on the top of your greatest desires list I recommend you reevaluate life, because there is so much more to live for. Let's face it. Accounting topics such as the ones listed above are meant to be learned via the following:

  • Last-minute (shout out to all my fellow procrastinators)
  • Out of sheer necessity
  • Not at all, because you don't got time for that

Regardless of which bullet point you fall under I think this article will be a good read for you to get a broad strokes understanding of why it's important and if you've got the chops to do it yourself.

Why Do I Need Expense Tracking?

Before we get into how let's get into the why. There are multiple reasons why tracking your business finances is very important. I think one of the most important things for our freelancers is that it could save you a lot of money when you are filing your self-employed taxes.

Yes, A LOT of money. Remember, business expenses are tax deductible, meaning that they will reduce any income on your tax return, thus resulting in a smaller tax bill. When you can accurately record all expenses that come from your business bank account, credit card, or whatever new payment platform we are using now then you can accurately depict your profit at the end of the year.

You will be able to accurately file taxes and reduce your business income by whatever business expenses that you have. If you don't track expenses and have no idea what your tax profit or loss is then you will most likely be overpaying in tax. Would you rather spend more of your own money or give it to our very efficient and thrifty government to spend? I think I already know the answer.

What if you are just going to do it the old fashioned way and just make some numbers up? Because that never got anyone in trouble. In the unlikely occurrence of an IRS audit the IRS could classify some of your claimed business expenses as false and you could face fines and penalties, in addition to some credits being disallowed in future tax years. Yes, I know this stuff can be boring, but it's very important!

Other Handy Benefits

In addition to saving you money on taxes at the end of the year there are other benefits to keeping your bookkeeping (aka expense tracking) up to speed. If you go to apply for a business loan then they will most likely want to see your records. If you don't have a reliable reporting system and give them all your receipts shoe-boxed style the bankers will most likely see dollar signs as they look at you and propose a huge interest rate. Or they will just audibly laugh out loud and just ask you to leave. So to stave off potential embarrassment then do yourself a favor as a small business owner and come up with an expense management system.

I guess another given of tracking expenses is to be able to analyze your business. I mean if your are in business you should technically be able to answer the question "am I actually making money?" Tracking business expenses can help you understand your business cash flow and also aid you in knowing what parts of your business are profitable and which aren't. You also get to see if you're being overcharge in one area or another, so this is definitely something any small business owner, sole proprietor, freelancer, or independent contractor should at least know something about so that they can understand their business that much more.

How to Track Business Expenses

Now that you have indulged in the appetizer of the article let's get to the meat and potatoes shall we? Since the US education system somehow seems to think forcing calculus and algebra down our throats and not teaching us life defining lessons about taxes and how to do accounting in a business venture that you start you guys instead are stuck reading my articles. But let's face it, even if there was an accounting class you could have taken in high school it probably would have been first on your list to ditch, sleep in, or transfer out of, because, let's face it, it's accounting. Besides Ben Affleck's major motion picture nothing exciting has happened in the industry for decades, so I get it. I digress. There are many different ways you can track your business expenses. I'm going to go over a few ways and some pros and cons of each and allow you to pick what is best for you.

If you are a self starter and would rather not spend any money on anyone else's help you can do this yourself. Essentially if you have a couple of hours or more each month and the wherewithal to learn you can track expenses in something like an excel spreadsheet or Google Sheets. Really all you will want to record is the date you purchased something, what it was, and the amount. You can add expense categories in there as well, like if it was a travel expense, office supplies, cell phone, or just overall business purchases. With that type of expense tracker and a little bit of excel knowledge you should be able to have enough of a record assembled to accurately file your taxes at the end of the year. If you don't feel like setting up your own spreadsheet Keeper Tax offers this free 1099 template. What is important if you are doing it yourself is that you stay organized and on track so that you don't fall too behind or get lazy, because nothing is worse than trying to piece together year-long records the night before your tax return is due!

Tools For Expense Tracking

For those of you who want something a little more refined there are plenty of things out there that can take some headache out of bookkeeping. You can use applications online such as Quickbooks Self-employed, Freshbooks or Expensify that you can use to organize your revenue and expenses. These take a little bit of learning before you can get used to them but generally they are pretty easy to get the hang of. Some of these offer importing of real-time bank transactions or business credit cards that all you will have to do is class on your own time. These applications can cost money every month depending on what tier membership you want. You can also find some for free as well! Applications like these are nicer in the sense that you can generate reports with the click of a button and specify different time periods without having to do some coding in Excel. Some of them also have a mobile app that allows you constant access and essentially infinite accessibility. If you have some time and don't mind spending money then this could be something that works for you.

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Lastly for those of us who are lazy or don't think they are smart enough to do it on their own you can always hire it out. Yes it may seem like it could cost a lot, but hear me out! Keeper Tax has a service that you can hire that allows you access to your own personal bookkeeper that tracks your business expenses real-time and always will have you prepared come tax season. Using a service like this eliminates any need for paper receipts and will help your break out your personal expenses vs your business expenses. Their bookkeepers will also help you identify potential tax deductions that you might miss, which could actually save you money in the end. You get all of this for under $30 per month, which could very well get paid back to you in terms of tax savings in the end. If you like easy, then this is the way to go!

I hope you now have a good direction of how to track business expenses no matter what avenue you want to take. If you have any additional questions I advise you to reach out to a tax professional or Keeper Tax for more guidance.

Robby Nelson

Robby Nelson

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When not hanging out with his high profile friends like Gandhi or Batman, Robby enjoys spending time with his wife and children. He can sneeze with his eyes open, has won two lifetime achievement awards, and has visited every country; three of which haven't been discovered yet. He is also a Certified Public Accountant and assists clients with a wide variety of accounting and tax issues.

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Note: at Keeper Tax, we're on a mission to help freelancers overcome the complexity of their taxes. That sometimes leads us to generalize tax advice. Please reach out via email if you have questions.

Discover the tax write-offs you've been missing

Keeper Tax automatically finds tax deductions among your purchases. On average, people discover write-offs worth $1,249 in 90 seconds.

Download Keeper Tax→

Discover the tax write-offs you've been missing

Keeper Tax automatically finds tax deductions among your purchases. On average, people discover write-offs worth $1,249 in 90 seconds.

Download Keeper Tax→
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