What Are Business Expenses? How Do I Track them?

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What Exactly Are Business Expenses?
How to Keep Track of Business Expenses
Tips on How to Track Business Expenses
Benefits of Tracking Business Expenses
Free Software to Track Business Expenses
Which Business Expenses Are Tax-Deductible?
Do You Require Physical Receipts for Tax Purposes?
Can I Claim Lunch if I’m Self-Employed?
How Do Self-Employed People Keep Track of Their Expenses?
Will the HMRC request Proof of Expenses?
Conclusion
Related Articles
References
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Large and small firms both try to improve their finances through purposeful measures. One such measure could be to streamline their systems for tracking business expenses. You should also learn how to write off business expenses. Companies may incur several business expenses, and understanding how to track these expenses will help you become more equipped to manage company finances appropriately, whether you work in accounting or finance.

In this post, we discuss the benefits of tracking business expenses, provide six processes for tracking business expenses, and provide some useful tips when tracking your business expenses, as well as software that can be used for tracking business expenses.

What Exactly Are Business Expenses?

Business expenses are costs incurred while operating a business. Ordinary and necessary business expenses, often known as business deductions, are removed from revenue to compute profits, losses, and taxable income. Advertising and marketing costs, bank fees and commissions, software and utilities, office supplies, printing, postage and delivery, and mileage are all examples of these expenses.

Keeping track of business expenses allows you to monitor earnings and losses as well as explore business trends to assist you in developing forecasts. You can plan smart spending since you know how much money you have and where it goes.

When you produce documentary documentation, the IRS will write off business expenses. As a result, keeping track of your business expenses will lower your organization’s taxable business income.

How to Keep Track of Business Expenses

Here are six actions you may take to correctly track business expenses:

#1. Create a Business Bank Account

The first step in tracking business expenses is to register a bank account dedicated to business activities. Business bank accounts can be used to pay for expenses such as advertising and office supplies. If your employer does not already have a business bank account, consider pushing them to open one to make it easier to record and track expenses and avoid the liability that comes with using a personal bank account for business transactions. It may also be advantageous to have a separate credit card for business expenses.

#2. Choose an Accounting System

You can choose an appropriate accounting system to better track expenses once you have a separate business bank account. There are two sorts of accounting systems: cash and accrual. A cash accounting system only acknowledges transactions when cash is exchanged, whereas an accrual accounting system records revenue or expenses as they occur. You should compare these two ways to see which is best for your employer.

#3. Using Software, Categorise Each Spend

Regardless of the accounting system you employ, using business or accounting software to set a technique for recording your expenses is sometimes advantageous. Business software can assist you in ensuring that your financial data is accurate and up-to-date while also making the recording process easier. You can conduct online research to learn about the many types of software available. Some of this software can also help you learn how to write off business expenses.

#4. Connect the Software to the Bank Account

You can make tracking business expenses easier by connecting the business bank account to the accounting software of your choice. This allows you to better protect the company’s critical financial data and get more oversight. After connecting, you can instantly download all business transactions to the accounting software of your choice. Setting up automated imports can help ensure you don’t miss any changes to the business account and can help you save time on bookkeeping.

#5. Keep Track of Your Receipts

Make duplicates of business-related receipts to better manage and track expenses. These documents are especially useful when it comes time to pay taxes since they can help you demonstrate the necessity for tax deductions and write-offs. There are also mobile applications that can help you produce digital copies of business receipts, reducing the need for physical storage. Consider purchasing an application that allows you to attach receipts to business invoices. Some programmes may even generate expenditure reports for reimbursable expenses automatically.

#6. Keep Track of and Review Your Expenses

Record all business expenses to ensure they are properly accounted for, then go over them when it comes time to conduct an audit. If you decide you don’t want to record your expenses automatically, consider investing in software systems or applications that allow you to manually enter your expenses. You might also choose to record your expenses regularly, such as at the end of each month or twice a month. Try to categorise your business expenses regularly and utilise them to help you make decisions.

Tips on How to Track Business Expenses

It is very important to learn how to craft a comprehensive strategy to write off different types of business expenses. Here are some pointers to help you keep track of your business expenses more easily:

#1. Test Your Financial Acumen

Consider your present degree of financial understanding and use it to choose which software or accounting systems are ideal for you. If the company has a lot of different business accounts and expenses, it might be a good idea to invest in software with more categorising tools. Simple spreadsheet software may be more useful if the company is small and has few expenses. Whatever you decide, attempt to analyse the company’s spending data regularly and identify ways to improve the efficiency of the recording process.

#2. Think of Hiring a Bookkeeper

Hiring a bookkeeper might assist you in more effectively tracking business expenses. A bookkeeper organises financial entries for businesses and assists them in understanding their transactions and finances. Many bookkeepers work as independent contractors or on a contract basis. They may also do a lot of their work from home. You can conduct online research to find bookkeepers who provide rates that are within your employer’s budget.

#3. Determine the Tax-Deductible Expenses

Identify any tax-deductible business expenses to discover how the company might increase revenue and save money. There are numerous tax-deductible business expenses. Among these expenses are:

Banking fees: Banking fees are the expenses incurred when opening and maintaining a business bank account.
Vehicles: If your firm uses cars, trucks, vans, or other vehicles for business purposes, you can deduct the mileage and gas expenditures.
Housing: If the business runs out of a home, such as a home daycare, it is also feasible to deduct home-related expenses.
Food: Businesses that do business at restaurants or order food for their employees may be entitled to deduct their business meal expenses.
Repairs: Repairs and maintenance charges for business equipment such as fax machines, printers, phones, and copiers are included.
Travel: If employees travel for business regularly, the associated expenses may be deductible as well.
Employees: Wages and benefits for employees are also tax-deductible.

Benefits of Tracking Business Expenses

Knowing exactly how much money you spend each day and where it goes allows you to make better immediate and long-term financial decisions for your business.

Here are some of the most important advantages of keeping track of your expenses:

#1. Stick To Your Budget

Keeping track of expenses allows you to stay within a business budget. You won’t be able to tell if you’re overspending, underspending, or spending it in the incorrect area if you don’t know how much money you’re spending or where you’re spending it.

A business budget can also help you detect unneeded or excessive costs and take suitable measures to change your spending patterns before it’s too late. A budget is also necessary to ensure that you always have adequate money in an emergency reserve in case of a cash flow problem.

#2. Make Precise Financial Statements

Financial reporting accuracy, whether monthly, quarterly, or yearly, is critical to making better business decisions. It assists you in answering queries such as:

Can you afford to purchase a new company vehicle?
Is it a suitable time to organise a company-wide retreat?
Do you need to change your suppliers?

Expenses are a critical component of both the income and cash flow statements. For example, to determine if your company generated a profit or loss during a given time per period know the exact amount of expenses incurred. Furthermore, the more precise your financial statements, the more likely you are to pay the correct amount of tax. This brings us to our next topic.

#3. Pay the Appropriate Tax

Some of your business’s expenses are tax-deductible and can be claimed. These claims can significantly lower the amount of tax your company must pay to HMRC.

Here are some instances of tax-deductible expenses:

Website domain registration and hosting fees are examples of marketing and advertising expenses.
Salaries, bonuses, and commissions are examples of personnel costs.
Rent, utilities, and phone bills are examples of office expenses.
Clothing costs, such as uniforms and safety equipment required for business operations,

It’s crucial to understand that, depending on the type of business you run, there are distinct sets of laws for claiming expenses. Limited corporations, for example, can claim permitted expenses, which reduces their corporation tax obligation. Sole proprietors and partnerships, on the other hand, can deduct reimbursable expenses from their business profits. Master the skills on how to utilise tax laws to precisely and strategically write off your business expenses.

Free Software to Track Business Expenses

Expense tracking software is a useful tool that may assist organisations of all sizes. This solution makes it simpler to keep track of business expenses, organise crucial receipts, calculate employee reimbursement amounts, and understand how much money to budget for business expenses.

#1. Divvy

Divvy is a completely free spending management and business budgeting tool. You and your employees can use a Divvy card to keep spending organised when making business purchases. You can set spending limitations for each employee and allow them to categorise their purchases. This allows your organisation to better control its budget and eliminates the need to reimburse staff for business expenses.

#2. Everlance

Everlance is a mileage- and spending-tracking programme. While the company does provide a paid premium subscription, there is also a free version with limited functionality. Everlance’s free plan allows for up to 30 automatic visits per month, unlimited receipt uploads, and IRS compliance reports. You can manually track your business expenses and export an unlimited number of CSV files. This option can be especially useful if you drive for work or have workers who drive as part of their profession.

#3. Expensify

Expensify is a receipt and expense management software that assists organisations in better managing their expenses. Entrepreneurs and freelancers will like the free version. You will be allowed to perform 25 SmartScans each month without paying a subscription charge if you sign up as an individual rather than a group. The free edition enables users to submit receipts, set up cost restrictions, and track mileage and time expenses.

Ramp

#4. Ramp

Another free software alternative to investigate is RAMP. This solution includes both virtual and physical cards that may be used to track and monitor business expenditures. You can use this solution to get 1.5% cash back on your regular business expenditures, in addition to tracking spending and delivering automated reporting. The brand also offers exclusive partner deals, allowing you to save on existing expenses or future purchases. Businesses can also save time by utilising Ramp’s automated financial reporting solutions. You must apply to use this solution.

#5. TravelBank

Another expense tracking and expense management programme that makes it easy to track spending is TravelBank. This company offers premium programmes as well as the Expenses Free plan, which has limited functionality. Your organisation will have access to unlimited receipt scanning and expense reports with this product. This is an excellent fit for new firms that want to keep track of their expenses without going overboard. When you use this tool, your firm will also have access to email assistance.

#6. Zoho Costs

Zoho Cost is a free online cost-tracking tool. While the company offers numerous low-cost premium options, there is also a free plan with limited capabilities. Their free plan allows for up to three users and is an excellent choice for freelancers and small organisations. Bulk receipt uploads, mileage expenditure monitoring, chargeable expenses, expense reporting, and tax tracking are all included in Zoho expenditures. This programme accepts multiple currencies and has mobile apps for Android and iOS smartphones.

Which Business Expenses Are Tax-Deductible?

When small businesses provide a thorough accounting of expenses such as rent and mortgage payments, home office expenses, employee perks, retirement plans, and equipment upkeep, the IRS cuts their overall taxes. For self-employed firms, they also offer tax breaks.

Do You Require Physical Receipts for Tax Purposes?

No, tangible receipts are not required when filing your taxes. The IRS permits you to organise your business expenses digitally, but you must adhere to the standards that govern paper receipt filing.

Can I Claim Lunch if I’m Self-Employed?

If you are self-employed, you should be aware that you can claim a number of several, one of which is the self-employed food allowance. Yes, you read that correctly: You can get the money you spent on food back. A self-employment food allowance is considered a business expense.

How Do Self-Employed People Keep Track of Their Expenses?

You should keep all invoices and receipts for business purchases. HMRC has the authority to request proof. If you keep physical copies, organise them by expense category, month, or both. Use them, together with your bank or credit card statements, to keep your financial records up to date.

Will the HMRC request Proof of Expenses?

When submitting your tax return, you do not need to include proof of expenses. However, you should preserve proof and records to submit to HM Revenue and Customs (HMRC) if questioned. You must ensure that your records are correct.

Conclusion

Keeping track of expenses might help you improve the financial health of your organisation. It not only assists you in saving money, cutting costs, paying the correct amount of tax, and preparing accurate financial accounts, but it also motivates you to make better decisions for the future of your business. Discover effective methods on how to write off your business expenses and improve your financial outlook.

When you manage your business expenses effectively, you can uncover cost savings, obtain the proper expense deductions, and increase your overall income. As your business expands, it’s critical to keep a careful check on your spending and how it affects your profitability. Learn how to strategically write off various business expenses to maximise your tax benefits.