We know managing expenses may not be your absolute favorite task of the week (or the month … or the year … ). We also know having your books in order helps you cut business costs, lower your tax bill and put more money in your pocket in the long run. In other words, carefully and regularly managing your expenses throughout the year is really, really important.
That’s why we’ve asked two accounting whizzes to help us understand how to track expenses without hassle or heartache – and save gobs of money to boot. Robert Stewart and Ryan Walsh are both self-employed accountants who specialize in helping people who work for themselves. Ready? Here we go!
Tip #1: Embrace accuracy
The single most important part of managing your expenses is knowing exactly where all your money is. Whether you manage your own expenses or rely on a professional accountant, your books should be 100% up-to-date to generate an accurate Profit and Loss (P&L) or Balance Sheet.
Ryan Walsh recommends sitting down at least once a month to focus on your money matters.
“Planning,” says Ryan, “is definitely your friend.”
Specifically, you consistently should be:
Robert Stewart shares this tip for making sure you’ve got your documents on hand.
“For employees and 1099 vendors, consider withholding payment until the necessary paperwork is completed and submitted.”
You can find out more about your local tax requirements by checking online for your state’s revenue department (for income taxes) and labor department (for employment taxes).
Another suggestion: Pay particular attention to payroll.
Robert says small business owners who hire employees or subcontractors often get confused about properly managing payroll. Such transactions tend to be a little more complicated, and it’s easy to lose track of the sometimes-confusing logistics around payroll entries and updates.
“Payroll is where we see the most mistakes,” says Robert – mistakes which can be costly down the road in terms of tax penalties and interest.
Tip #2: Write-off expenses
Often, when it comes to smart business spending, timing is everything. While he would never endorse unnecessary purchases solely for the sake of a tax break, Robert makes this point:
“Small business owners should think about expenses they have coming up and, cash-flow willing, make as many of those necessary purchases before December in order to deduct the cost in the current tax year.”
Tip #3: Make your business official
If you're a sole proprietor, you may have debated whether or not to form an LLC or corporation. Specifically, you may have wondered if changing the official status of your business is a smart financial move.
The short answer? It is.
“We feel that you should form a business right away,” says Ryan. “Forming a company offers you personal asset protection, perpetual existence and tax flexibility, to name just a few benefits.”
Robert wholeheartedly agrees, pointing out that in most states, forming a business costs less than $1,000. He considers that a relatively small investment. Once your business is incorporated, he says:
“You can elect for Small Business Corporation (S-Corp) tax status. Compared with a sole-proprietor or partnership, the average S-Corp owner saves $1,000 to $1,200 on every $10,000 of profit.”
By this estimation, the cost of forming an LLC is far outweighed by the tax savings you’ll likely enjoy each year.
Before you go
QB Community members, what are *your* top tips for tracking your business expenses?