As an entrepreneur, keeping good records of your business expenses is crucial. Expense tracking can feel overwhelming and boring. But organization is everything when tax time rolls around! The key is setting up a record-keeping system that works for you and your business. Don't worry, I've got your back. Here are some top tips for tracking expenses like a pro:
Record-Keeping Tips For Tracking Business Expenses
1. Categorize Those Spending Sprees
Whenever you purchase something for your business, be sure to categorize the expense right away. Keeping expenses organized into categories like office supplies, advertising, phone bills, travel costs, etc. makes tax prep a breeze.
I recommend using accounting software or Excel spreadsheets to keep expenses organized. Set up different tabs or columns for each expense category. That way you can run reports and see where your money is going.
2. Stay on Top of Receipts
File receipts as soon as you get them. Don't just toss them in a shoebox to sort later! Trust me, scattering receipts everywhere leads to headaches at tax time.
Put each receipt in the corresponding folder or envelope in your filing cabinet. You can also scan receipts to store them digitally.
Just be sure to name and categorize the files consistently. Another option is snapping a pic of the receipt with your phone and uploading it to accounting or mileage tracking apps. This creates an ongoing digital paper trail.
3. Track Miles for Meetings and Errands
Don't forget to log any miles you drive for business meetings, errands, or travel. The IRS lets you deduct mileage for business driving, but you must record details like date, distance, and purpose of each trip.
Jot down trip info in a dedicated mileage log or use one of the handy mileage tracking apps. This ensures you capture all deductible miles driven.
4. Save Bank and Credit Card Statements
Statements from business bank accounts and credit cards provide backup documentation of expenses. Always download or print monthly statements for record-keeping.
Most accounting software connects directly to your business accounts too. This automatically imports and categorizes transactions for easy tracking.
5. Create Detailed Invoices
For any work you bill clients for, be sure to create professional invoices that outline what services or products were provided. Invoices serve as documentation and help avoid payment issues down the road.
Include key details like date, invoice number, client name and address, description of work, amount due, and payment terms. Save invoices along with any receipts or billing records.
6. Record Employee Costs
If you have employees, keep meticulous documentation of any costs related to hiring, compensation, or reimbursements. This includes payroll records, 1099s for contractors, employment taxes paid, and receipts for employee-related supplies.
HR software, payroll services, and bookkeeping apps can help track and organize employee expenses. But it’s still smart to keep manual records too.
7. Back Up Your Records
What would happen if your computer crashed or your filing cabinet went up in flames? Yep, all those expense records would be lost in the abyss. No bueno.
So be sure to back up your financial files regularly. Save them to a secure cloud storage system or external hard drive. That way your data stays safe if disaster strikes.
See, expense tracking doesn't have to be scary or confusing! Start putting these tips into practice now to make tax prep a total breeze.
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