One of the best parts of being a freelancer is the ability to deduct many of your business expenses. One of the worst parts of being a freelancer? Having to track and organize all of those expenses.
True, it can be a pain. When you’re just starting out, it might feel like you’re drowning in receipts. So how do you figure out a way to stay on top of all of your expenses so you’re prepared for tax time? While it can take a bit of finessing, there are ways to make it work. Here are some tips and tricks on how to track and organize all of your expenses:
Track the Right Info
When it comes to tracking your business expenses, it’s more than just keeping all of your receipts in one place. You also have to record the right info to keep everything organized. This includes:
The transaction date
The name of the person or vendor who received the payment
The expense amount
The reason for the expense
For example, if you bought a laptop from the Apple store, you might note down something like this:
12/15/17 — Apple Store — $1,299 — Business equipment
Having all the right details can make it easier to track your expenses, especially if you end up getting audited — so make sure you’re capturing this information for every business purchase you make. But how do you know what counts as a normal business expense? Start by taking inventory of your typical daily, monthly and annual business spending. For example, you’ll probably want to keep track of expenses related to office space rent, business equipment, office supplies, business meals, business travel, business credit cards, lawyer fees and producing advertisements.
Create Calendar Alerts
As a business owner, there’s a pretty good chance you have some recurring expenses. To stay on top of them, consider creating calendar alerts in an online calendar. That way, you can take your list of business expenses and categorize them as weekly, bi-weekly, monthly, annually or as-needed.
For example, each month you might pay rent on a coworking space, make a payment toward a business loan or pay a bi-weekly financial advisor fee. For expenses that happen regularly, set up a calendar alert that’ll tell you when you need to make the payment. Doing so will not only help you keep track of your expenses; it’ll also ensure you never miss an important payment date.
Use a System That Works for You
You might be wondering whether you should keep a physical or digital record of your business expenses. In reality, the best system to track your spending is the one you’ll stick with. If you’re digitally savvy and hate having stacks of paperwork in your home, keeping track of your expenses online is probably best. But if you prefer working with physical files, you may want to try recording your expenses in a dedicated ledger or notebook for the current year.
You can also try the hybrid approach: Having both physical and digital records can help you stay on top of everything, allowing you to have multiple ways to access the information you need. An added bonus? The extra set of records can come in handy in an emergency. If, for example, you lose a paper receipt or your computer crashes, this back-up system can make all the difference.
What does the hybrid approach look like? Well, try keeping all of your physical receipts in an organized folder, separated by month. On each receipt, mark the date, reason for purchase and circle the amount and vendor. Then, you can file away your physical receipts under the month the expense was made.
But before you put it away for good, take a photo of the receipt and upload it to an app like Expensify. Then, you can sync your expenditures to an accounting system like QuickBooks, which will help you record and organize all of your business expenses in a way that works best for you.
The Bottom Line
Keeping track of your business spending may seem like a pain, but it doesn’t have to be. Having physical or digital systems — or both — to keep your records straight can help you stay organized, which will make tax time easier. Keep backups and categorize your records to cover your bases, and soon you’ll be able to focus on running your business rather than spending your time tackling an accounting nightmare. Because, really, who has time for that?