Tax time’s coming up, and once again, you find yourself feeling an unpleasant mix of anger, anxiety, and regret. You’re angry at the idea of having to part ways with your hard-earned money, and at yourself for not being more prepared.
You’re anxious thinking about how much taxes are going to set you back, and how difficult filing those forms is going to be.
Finally, you regret not keeping good enough track of your business expenses and setting money aside for this time.
As the quote goes: “By failing to prepare, you are preparing to fail.”
While tax time can be extremely stressful, it doesn’t have to be such an ordeal. The secret’s simple, and you already know it. Foster healthy financial habits by keeping track of your expenses all year round.
How to do this though? The concept might be easy, but the execution is not. Especially when you’re new at this, or when you have years of bad habits behind you.
This article’s here to give you 7 essential tips that’ll make keeping track of business expenses a breeze. So, read on!
1. Use a Receipt Scanner
Have you ever found yourself dealing with an ungodly amount of old receipts when sorting through paperwork? While receipts are extremely convenient, they quickly pile up and can make your life a bureaucratic nightmare.
The idea of receipts is great. But in practice, filing them properly isn’t always easy, or even possible. You just can’t place that much trust in a paper that is so readily misplaced.
Thankfully, in this day and age, going paperless isn’t a mere pipe dream. Modern technology allows you to scan your receipts and will save you many a headache.
Visit https://setapp.com/how-to/best-receipt-scanners-and-expense-trackers to learn what to look out for in a receipt scanner, and find the best apps to start tracking your expenses today.
2. Set up a Business Bank Account
If you’re a small business owner, you may not have thought of creating a separate bank account for your business expenses. But having a business bank account will make it way easier to sort through them.
To start with, you should draw a clear line between your personal and business purchases. Not only is this separation financially sound, but it’ll also help your mental health. When everything’s jumbled up, you can never switch off from work.
Any income from your business should go directly to your business account. Likewise, only use your business account for any and all business-related expenses. Do not use it for your personal expenses.
Having a business credit card makes keeping track of your business spending a breeze. A business account will also facilitate any future potential financing.
3. Note Your Expenses Right Away
The phrase “I’ll do it later” is your enemy. Because really, will you actually do it?
You may think you’re going to do it. You may even remember to write down those expenses once you’re back at home. But why make your own life harder?
You already have enough to think about without adding these small, but significant details. The less mental energy you expend on trifling matters, the more you have for what’s really important.
Use all your tools, such as your expense tracker or Google Calendar. Set up notifications to remind you of recurring or upcoming expenses and organize them.
A calendar is a very handy tool as it gives you a visual reference, and you can print it come tax season.
4. Make Sure to Keep Track of All Your Business Trips
While most people remember to take note of their bigger expenses such as plane tickets or hotel rooms, it can be easy to overlook many smaller expenses. And they quickly add up.
Be meticulous. Make sure to keep track of every single thing when it comes to your business trips, and don’t forget to include your mileage.
For instance, if you had to rent a car, or go out to dinner with a client, that’s a business expense.
5. Hire an Accountant
If keeping track of business expenses just isn’t your thing, you might consider enlisting the help of a professional.
You can hire someone to manage your books on a contract basis. They’ll only spend a few hours every month sorting through your invoices and receipts.
On the plus side, they have expertise and the use of professional accounting software. If you have trouble maintaining proper records, they might actually end up saving you money in the long run.
The downside is that you have to be able to afford it. But if your business is showing promise, it might be well worth the $20 to $50 an hour they’ll charge you to keep the IRS at bay.
6. Know How Old Tax Returns Work
Old tax returns may prove useful if you need to access specific information concerning your income or expenses. They also show your financial history, which may come in handy when applying for a loan or mortgage.
Tax returns may be amended or audited for three years, so make sure to keep all your tax information for that amount of time, at the very least. And do not toss copies of your tax returns.
What’s more, if there happens to be a discrepancy of more than 25% between the income you declared on your tax return and the amount you actually made, then the IRS has six years to send you an audit request.
You can access an official copy or transcript of old tax returns online. While the transcript is free, however, each copy will cost you $50.
7. Keep Records of Your Investment Losses
If you incurred losses in previous years, make sure to keep all the relevant documentation. It could save you money.
Even if a capital loss from an investment is too big to be entirely deducted this year, it might keep being deducted in the following years up until the full amount is deducted.
For instance, if you had a capital loss of $10,000 this year but were only able to deduct $6,000 on your return, the remaining $4,000 will be carried over to next year.
Keeping Track of Business Expenses Made Easy
While keeping track of business expenses may seem tedious, it’s an essential part of being in the business world.
If you approach it methodically and procure the right tools, you’ll find that your stress levels will be significantly diminished come tax season. Start building good habits today, and they’ll become part of your routine in no time!
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