4 Simple Tips To Better Track Your Business Expenses
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How easy was it to gather up your business expenses for this year’s tax filing? If you had to sort through shoeboxes of receipts or scroll through massive spreadsheets, you’ll be happy to learn there’s an easier way. And now’s a great time to start fresh. Here are some time-saving tips for tracking your business expenses this year.
Effective expense tracking eliminates much of the hassle in preparing tax returns. When done properly, all of the information is in one spot. And it ensures you don’t miss a valuable deduction. For example, personal protective equipment is tax-deductible in 2021.
As a bonus, expense tracking also helps you better manage those expenses. Recognizing a rise in spending for a certain category helps you take action sooner, while you still have options. Perhaps you need to switch to a lower-cost supplier.
See if one of these ideas can help you better track your business expenses:
Wall off your business finances.
If you are a one-person shop, it’s tempting to just use your personal accounts for business expenses. But that means you have to pull apart personal and business expenses at tax time. It’s time consuming and you may have difficulty documenting which is business related. One way to address this is to establish separate business accounts.
Besides a business checking account, that might include a business credit card used only for your business. Many offer categorized reporting, some can be downloaded into accounting software. In addition, some offer cash-back rewards that you can use to take advantage of business opportunities like discounted prices for supplies. Another advantage is you’re building a business credit record. That can be useful if you need to apply for additional financing.
Forbes publishes a monthly review of their picks for best business credit cards.
Digitize your receipts.
There are a number of apps that can collect receipts and categorize the information electronically. No need to save paper receipts. It’s just a matter of scanning the receipt with your cellphone. The app captures the relevant information and stores it for future use. Expensify and FreshBooks are examples of apps in this category.
Apps like Mile IQ use a geolocator function to track your business miles. The app runs in the background and automatically (and accurately) tracks miles driven. You can add expenses like tolls and parking. In addition, you can identify the purpose of the trip and hours worked. Detailed reports can be run on your desktop by date, location, or other categories.
Here’s Business News Daily’s pick for the top ten expense tracker apps. Many are cloud based so they don’t take up storage space on your devices and they can be accessed from anywhere.
Consider using accounting software.
The information you get from a tracking app or from your credit card account can be imported into accounting software. This is especially helpful if you have numerous expense categories. It can also link in your business bank accounts to create a broader financial picture. When tax time comes, many software systems connect with tax preparation services to make filing even easier.
Here is Motley Fools’ 2021 picks for best small business accounting software.
Utilize tracking reports.
Expense management is a key component of a positive cash flow. So it’s important to closely monitor trends. Take advantage of the reporting that is available with your business credit card, tracking app or accounting software. Many allow you to schedule monthly reports on expenses in the categories you create.
Need help in creating those categories? Motley Fool identifies some of the most common small business expense categories. Choose categories that reflect your business. For example, if you see clients outside your business, you’ll want a category to capture travel expenses. You may also want to consult the IRS Business Expense webpage to identify any new categories of tax-deductible expenses.
Simplify your expense tracking efforts with these tips. Start now and you’ll make next year’s tax filing even easier.