This is pretty obvious, but the IRS defines a business expense as one that is both ordinary and necessary. Every business has expenses, which are subtracted from revenue to determine your profit. Tracking your business expenses may seem like a chore, but it doesn’t have to be!
How should you keep track of business expenses?
While some people prefer a shoebox, internet Accountant has found that keeping track of both expenses and revenue works best with a business bank account and an accounting tool like QuickBooks Online. You can link both together to simplify the process, but definitely keep your business finances separate from your personal finances.
As you write checks, use your business credit card, and incur expenses, document them in your accounting software. Between QuickBooks Online and some great apps like Expensify, a lot of this can be automated, meaning less hassle for you.
Each month, use your accounting tool to review expenses. Look for variances from your expectations or budget.
What expenses should you track?
The simple answer is “all,” but if you’re a little behind, let’s focus first on the most important business expenses. Think about your largest expenditures, like payroll, or those directly linked to critical business operations, like rent. Tracking these expenses may help you find the greatest opportunities for efficiencies and cost reductions.
Most common:
- Employee expenses: payroll, benefits, 401(k)
- Facility expenses: supplies, rent, utilities, insurance
- Operating expenses: equipment, raw materials, professional services, travel
- Bank expenses: credit card processing, interest
Why should you keep track of business expenses?
Monitoring your expenses holds you accountable and keeps you on track to stay within your budget. It also helps considerably during tax time, potentially putting more money in your pocket. Here are great reasons why you should make this a priority:
- Taxes and tax deductions: Many expenses are deductible, so accurate expense tracking can help you claim the right tax deductions and credits.
- Financial management: Monitoring expenses confirms whether you are spending within your means, ensuring that you make informed financial decisions.
- Budgeting: Knowing where every penny is going makes it easier to set and manage budgets, keeping your business on track financially.
- Business growth: By identifying areas of overspending or underinvestment, you can redirect resources and more efficiently operate your business and grow revenue.
- Forecasting: By staying up-to-date with all your business expenses, you can better prepare future strategies, ideas, and goals.
You don’t have to do this alone. internet Accountant can help.
If all of this seems overwhelming or if you simply don’t have the time to keep track of your business expenses, fear not! We can help. Our team of experts can work with you to ensure you stay on top of expense tracking, making you aware of issues and opportunities. We can provide you with regular reports to make sure you’re properly tracking your business expenses and help you make smarter business decisions to guide your future growth. It’s more than reporting; it’s peace of mind.
Call us today for a consultation.
