How to track expenses: tips, tricks, and tax deductibles

Did you lose a week of billable hours last tax season because you spent time sorting through all your credit card charges and paper receipts to figure out how many of your purchases were business expenses? If so, it’s time to step up your organizational efforts and implement a system for tracking your business expenses in real time.

Handling business finances is often one of the least favorite parts of running a small business. Having a firm grasp on your cash flow, knowing what’s tax deductible and what’s not, understanding what you spent each quarter; it all translates into a more positive and less stressful experience at tax time.

You might be dreading that expense tracking is going to be a thorn in your side. But with knowledge comes power. Understanding how to properly track expenses will help ease the pain.

Here are a few ideas for building a better system for tracking expenses to help get you started.

• 1. Create a business bank account
• 2. Stay on top of your receipts
• 3. Take special note of all business travel
• 4. Note your expenses as they occur
• 5. Use software to track and analyze business purchases
• 6. Hire a bookkeeper
• Track expenses the right way

Create a business bank account

If you’re a sole proprietor with a brand new business, it may not have occurred to you to separate your business and personal finances. If that’s the case, here’s how you can take care of this. Put all of your business income directly into a business account, and use a business credit or checking account for any business-related purchases that can be paid by card.

You can move money from one account to the other as necessary, but drawing a clear line between your business and personal accounts will help you keep track of whether you’re making business or personal purchases. Creating a business bank account will also build up your business’s credit should you need financing in the future.

As a bonus, having a business credit card makes it especially easy to track business spending. You’ll only use this card for business purchases, so figuring out what business expenses you’ve made will be a no-brainer. This comes in particularly handy during tax season.

You can connect QuickBooks to your bank accounts, credit cards, PayPal, Square, and more, and we’ll import and categorize your expenses for you. Custom rules help you to categorize your expenses, you can run reports to see how you spend every dollar.

Stay on top of your receipts

When you get receipts for business-related purchases, organize them in a file by month, or request email copies of receipts and store them in digital files in your computer. (Whatever you do, try not to store them in a shoe box. Your accountant will thank you for it.)

If you’re ever audited, you may need your receipts as evidence of your business purchases. Storing your receipts will also help you keep track of how much money you’ve spent, making it easier to track expenses throughout the year.

With receipt capture in QuickBooks, you can take photos of receipts with our mobile app and we’ll automatically match all your receipt information to an existing transaction.

Take special note of all business travel

It’s easy to overlook certain travel expenses beyond a plane ticket and hotel room. A big part of expense management is tracking every single detail of any business trip. That dinner outing you had with a client? A business expense. The car you had to rent? A business expense. That one-of-a-kind souvenir you just couldn’t pass up? Okay, that one’s coming out of your pocket.

Note your expenses as they occur

Real-time, automated expense tracking is the simplest way to keep on top of recording expenses. QuickBooks can streamline this process with it’s expense tracking tools.

If you need a manual method, use a tool like Google Calendar and set up notifications for recurring or one-time expenses. Use the event form to write down the type of expense (i.e., utilities, rent, contractor services) and the recipient of the funds.

You can set up alerts to remind you to pay upcoming expenses before they’re due, and you’ll be able to print out the entire calendar for reference when the next tax season comes around. These reminders can also help prevent missed payments and keep your spending habits front and center.

Many online calendars like Google Calendar can also sync with your cell phone, so you can conveniently enter your expenses while you’re out and about.

Use software to track and analyze business purchases

Accounting software like QuickBooks provides options to create expense categories and link them to line items on your tax forms, which will help reduce the time you spend preparing your tax returns. Sign up for your free QuickBooks Online trial to see if its the right accounting software for your business. You may also explore our accounting software comparison pages, like this page about QuickBooks vs. Xero.

Accounting software can also be used to generate profit-and-loss statements, so you can easily assess the financial health of your business. Using software to track business expenses will save you a lot of time when tax time rolls around in April.

The Cash Flow Planner in QuickBooks can also help you calculate monthly expenses, track working capital, and create cash flow projections. With a free QuickBooks Checking bank account, you can set up budget Envelopes to help you save toward specific expenses, like payroll or operating costs.

Hire a bookkeeper

Is your company growing and you need help tracking all your expenses? Or you just don’t have the knack for numbers? You should consider hiring a bookkeeper on a contract basis. They can spend a few hours each month going through your receipts and invoices, and tracking them in accounting software.

While hiring a bookkeeper is another expense, it may even help you save money in the end because you’ll only be able to make small business deductions if you keep proper records. And who keeps better records than a professional bookkeeper?

Track expenses the right way

It’s true, tracking expenses can be a ton of work, but it’s a given for small businesses. But here’s the best part. Doing it the right way is really worth the trouble in the long run. Come tax time, you’ll be so relaxed knowing your receipts are organized, and your monthly expenses are in tip-top shape.