As the Chief Everything Officer (CEO) of your own business, you may resort to stuffing all your expense receipts into a shoebox given how busy your schedule can get. Despite feeling the pain of climbing a mountain instead of a molehill during tax time, knowing the ins and out of your business expense is a key opportunity to save as much money on your taxes.
If you take tiny steps each day or week to keep track of your financial transactions, you’ll feel much more ready and capable of crossing that tax finish line!
Here’s how to turn expense tracking from something that feels like a chore into a financially rewarding habit.
- Business expenses are costs associated to running your business which you can claim for tax deductions.
- Use accounting software or a spreadsheet template to track and categorize your expenses.
- It’s important you don’t mix up your business and personal expenses by keeping your accounting clean, accurate, and honest.
Why is it important to keep track of business expenses?
Diligently tracking and recording all your expenses puts you in control and ahead of the game.
- You’ll have a better understanding of your income and related costs.
- You’ll be on top of deductions that can help reduce your taxable income.
- You’ll be able to file on time and you’ll keep the CRA happy.
Simply put, good bookkeeping = good business!
What’s the difference between a business and personal expense?
Any expense that’s directly linked to operating and earning money for your business is considered a business expense, which you can claim on your tax return as a deduction. Personal expenses are costs that aren’t required for you to run your business.
For example: printer paper, and ink are both common business expenses. Tickets to a movie, or a new bike, not so much (unless you’re a film critic or a courier!)
To avoid getting audited, it’s important you don’t mix up your business and personal expenses by keeping your accounting clean, accurate, and honest. When in doubt, you can always double-check with a tax expert.
TIP: Consider opening a business account to separate your business and personal bank accounts. This eliminates the mental gymnastics of having to keep track of your personal savings (after-tax dollars) versus your business income (taxable dollars).
How can you keep track of your business expenses easily?
Think “money in, money out”.
“Money in” is what you earn while “money out’ is what you spend to run your business — equipment, rent, office supplies, etc.
Here are 2 ways to keep accurate records of all the above.
1. Using an app or software
With business expense-tracking software like QuickBooks, you can build a habit of taking a photo of your receipt from your phone the moment you buy something – and uploading it directly into an accounting software program.
When you make expense tracking something you do without thinking – like brewing morning coffee or brushing your teeth – scavenging for receipts at tax time will be a thing of the past.
2. Using an business expense tracking spreadsheet
If you’d prefer a do-it-yourself (DIY) solution, you can always create your own expense tracking template to stay organized.
Not sure what this looks like? We’ve created a free business expense spreadsheet template for freelancers you can start using today!
Free Template - Business Expense Tracker for Freelancers
Do you need to keep the receipts once you record the expense?
You’ve done all the right data entry work and kept accurate records. But there’s no proof like actual proof – the receipts!
File them by category within a yearly folder for quick access if needed and hang on to these for seven years. You may need to produce them down the road if the CRA asks to see them.
Being your own boss comes with making important decisions, and knowing when to take a step back or ask for help when needed.
With TurboTax Full Service, our tax experts will help you with any questions you may have throughout the year. Plus, you can access them on-the-go with the TurboTax mobile app for Android and iOS. We can provide a full-service income tax filing experience for those who want to be free of this task!
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