How to Keep Track of Business Expenses

by Cynthia Myers

    Naturally, running a business requires expenditures. Tax laws allow these costs to be written off to offset any income and lower your tax bill. Keeping close track of your business expenses allows you to take advantage of every one, whereas slopping record-keeping could end up costing you money. You can use several methods to keep track of your business expenses; use the one that best fits your personality and working style.


    Some owners prefer old-fashioned paper and pencil for their business record keeping. If you have a small business, such as a sole proprietorship, without employees or a lot of complex transactions, keeping track of your expenses can be as simple as recording them in a ledge daily or once a week. Come tax time, add up each category of expense and record them on Schedule C of your tax return.


    Computer software for small businesses makes it easier to keep track of your business expenses. Software such as Quickbooks allows you to categorize expenses. Record each expense and label it with the proper category. You can run reports to track spending in different categories. Software makes preparing taxes easier, because the computer keeps track of expenses and adds them up for you. Back up your software daily to avoid losing your business records.


    Your record of expenses, whether written or entered into the computer, is only part of the documentation you need for your business taxes. You should also keep the receipts for your expenses. For a smaller business with few receipts, an accordion-type file with labels for the different categories of expenses, such as Advertizing, Office Supplies, Postage, etc. will work fine. For a larger business, folders in a file cabinet can work. After you’ve recorded an expense, file the receipt in the appropriate file folder or section of your accordion file.


    If you use your personal vehicle for your business, you can deduct a fixed rate for every mile you drive for business purposes, such as calling on clients or driving to the office supply store to pick up printer cartridges. Keep a mileage log in your car and record the starting and ending miles for each trip, along with the purpose of the trip. This makes it easier to add up your business miles at the end of the year, but it also serves as documentation to justify your mileage deduction to the IRS.