Business Expense Tracking: What to Keep and Why It Matters

Why Is Keeping Track of Business Expenses Important?

Tracking business expenses isn’t just about staying organized; it’s a requirement. The IRS mandates that businesses keep accurate records, especially when it comes to expenses. It also mandates that you retain these records for up to seven years. A well-documented list of business expenses can:

• Save money at tax time through deductions

• Help you understand your spending patterns

• Prepare you for potential audits

• Improve budgeting and planning

Being proactive in expense tracking allows small business owners to stay financially stable and avoid last-minute tax season panic.

Step 1: Learn How to Keep Track of Business Expenses

A good understanding of how to track business expenses can make all the difference. Start by separating your personal and business expenses. Mixing them creates confusion and can complicate tax filings. Next, decide whether you want to track expenses manually, through electronic spreadsheets, or using accounting software.

Consider these tools to make tracking easier:

• Spreadsheets. Useful for beginners and low-cost tracking. Try using Google Sheets or Excel to list your expenses in categories.

• Expense tracking apps and software. Apps like Quickbooks, FreshBook, and Expensify make tracking easier by integrating with bank accounts and categorizing expenses automatically.

• Receipt scanners. These are devices that allow you to scan and save paper receipts, storing them digitally for access and less clutter.

Each of these products can simplify the process, making it easier for you to focus on growing your business.

Step 2: Know What to Track 

When it comes to keeping track of business expenses, knowing what to document is essential. Here are the categories you’ll want to keep track of:

• Travel expenses. These expenses are important to track. They can include airfare, rental cars, mileage if in your own vehicle, and meals if the trip is business-related.

• Office supplies and equipment. Physical items like computers, desks, chairs, and office supplies are deductible business expenses. 

• Business software fees. Expenses for essential software services or subscriptions like accounting, project management, and marketing tools are tax deductible. They should be tracked as business software fees.

• Meals and entertainment. While only 50% of meals can be deducted, they’re still worth tracking if they are for client meetings or business-related events.

• Utilities and rent. If you have a dedicated office space or use part of your home as an office, you can deduct these costs as business expenses. If you want to claim part of your home rental or mortgage payments because your office is in your home, be sure you learn or check the rules regarding how much of that expense you can deduct.

• Professional fees. Fees paid to lawyers, accountants, and consultants directly impact your business.

Knowing which categories to track and what categories you can write off helps you keep your records clear and makes expense management easier. Set aside time weekly to update your expense records so you aren’t overwhelmed at tax time.

Step 3: Determine the Best Way to Keep Track of Business Expenses

Finding the best way to keep track of business expenses will depend on your business’s needs and budget. Here are three effective methods. 

• Manual entry in a spreadsheet. A simple spreadsheet can work for those who prefer a hands-on approach and have the time to sit down and enter expenses at once. This option is likely the most cost-effective—however, it requires more discipline and routine updates to avoid missing any expenses.

• Automated expense apps. Using expense apps is often the most efficient option for tracking and creating reports and summaries. Apps discussed above can integrate with your bank accounts, automatically pull expenses, and categorize them. 

• Hire a bookkeeper. If your budget allows, a bookkeeper can manage your expenses and handle monthly records. This approach ensures someone is responsible for accuracy, and many bookkeepers can use cloud-based software that you can access anytime.

Tracking expenses doesn’t have to be difficult. Once you find a system that works for you, it will feel more like a part of your regular routine.

Tips for Staying on Top of Your Small Business Expense Tracking

Organizing expenses with a system will make tax season less stressful. Here are some simple tips to stay on top of your expenses:

• Set reminders. Set a specific day each week to log expenses. Consistency helps you stay organized.

• Use folders for receipts. If you prefer paper copies, use folders or envelopes for each expense category.

• Keep digital copies of receipts. Many IRS audits accept digital copies. Apps like CamScanner can digitize your receipts for easy storage, or you can create an album for receipts in your phone’s photo gallery.

• Review monthly. Check your expense records monthly. This will allow you to have a greater chance of finding any errors early on and ensure your budget stays accurate.

By following these steps, you’ll build a reliable system that keeps your business finances in order.

Simplify How to Track Business Expenses with Bizee

Don’t let the burden of expense tracking hold back your business. By following the steps above, you can become the financial hero of your own business. Whether you choose a manual approach, software, or professional help, staying on top of expenses is manageable. 

Bizee’s team has helped countless small business owners simplify their expense management, offering results-driven support and excellent client service. Call or contact us online today to learn more about how we can guide you through tracking business expenses with a free tax consultation and empower you to focus on what you do best—running your business.