How to Automatically Track Tax Deductible Expenses

If you’re a small business owner, tracking tax-deductible expenses is a crucial part of your financial management strategy. Not only can keeping organized records throughout the year save you money come tax season, but it can also help you save lots of time and effort.

When using effective tax-deductible expense tracking techniques, you already have the information you need — and it will be well organized, comprehensive, and accurate.

Keep reading to discover what types of expenses can be deducted and how ZenBusiness’s Money Pro app can make keeping track of everything easier than ever.

Understanding Business Expenses

Before you can start tracking business expenses, it’s essential to understand exactly what they are.

What are business expenses?

Business expenses are the costs incurred by a business to generate revenue and operate efficiently. These expenses can include a wide range of items, such as salaries, rent, utilities, equipment, marketing, and travel expenses.

Understanding what constitutes a business expense is crucial for accurate financial reporting, tax compliance, and informed decision making. By clearly identifying and categorizing these expenses, businesses can help ensure they’re capturing all potential tax deductions and maintaining a clear picture of their financial health.

Importance of Tracking Business Expenses

Tracking business expenses is essential for small business owners to maintain a clear picture of their company’s financial health. By accurately recording and categorizing expenses, businesses can identify areas for cost reduction, optimize cash flow, and make informed decisions about investments and resource allocation.

Moreover, tracking business expenses is necessary for tax compliance, as it enables businesses to claim legitimate tax deductions and avoid penalties. Effective expense tracking helps small business owners stay organized, helping ensure that all financial records are up to date and ready for tax filing.

What expenses can be deducted?

A good expense tracking strategy starts with understanding exactly what can be deducted. In fact, many small business owners miss out on potential tax deductions because they don’t effectively track business expenses or simply don’t know certain expenses can be deducted come tax time.

The Internal Revenue Service (IRS) defines business expenses as the costs of carrying on a trade or business. Furthermore, according to the IRS, these expenses are “usually deductible if the business operates to make a profit.”

An expense must be both “ordinary” and “necessary” to the business in order to be deductible. In this instance, “ordinary” just means that the expense is a commonly accepted one in your line of business (such as tables for a restaurant owner or office supplies for an accounting firm). “Necessary” does not mean that the expenses need to be absolutely indispensable, but simply refers to costs that are helpful and appropriate for your business.

Common Tax-Deductible Expenses

Some of the most common business expenses that may be tax deductible include:

• Payroll expenses
• Home office expenses
• Rent or mortgage payments (if you buy or rent space in which to operate your business)
• Commercial/business insurance costs
• Company vehicle expenses (and any other professional travel expenses)
• Equipment depreciation
• Employee benefit costs
• Retirement plan expenses
• Business-related taxes
• Interest expenses (this refers to interest charged on money you borrow for business expenditures)
• Various types of operating expenses (based on your business type)

It’s also important to note that the rules can vary greatly depending on your business type. For instance, small business taxpayers may account for costs of goods sold very differently from larger companies, and new entrepreneurs may need to “capitalize” (rather than deduct) certain startup costs. Please refer to IRS.gov for specific information, current regulations, and any other specifics you need to know.

Setting Up for Expense Tracking

Thankfully, setting up your expense tracking strategy isn’t too complicated. First, you’ll need to open a business bank account. Then, you’ll need to decide on your tracking method.

Open a business bank account

Opening a dedicated business bank account is a critical step in setting up a business expense tracking system. This account should be separate from personal bank accounts to ensure that personal and business expenses are not commingled. A business bank account provides a clear record of business transactions, making it easier to track expenses, manage cash flow, and prepare financial statements. Additionally, a business bank account can help small business owners establish a professional image and build a strong credit history.

By keeping personal and business finances in separate bank accounts, small business owners can streamline their expense management and help ensure accurate financial planning.

Choose how you’ll track expenses

Once you’ve set up a business bank account, you’ve got a solid foundation for tracking your expenses. There are a variety of methods you can use to track your business expenses. Some small business owners who are just starting out choose to track manually using a spreadsheet. Others choose a more robust accounting software.

But as with many aspects of business, the more you can streamline things, the easier your life will be. That’s where business expense tracking programs like ZenBusiness’s Money Pro come in.

How ZenBusiness Money Pro Easily Tracks Tax-Deductible Expenses

ZenBusiness Money Pro helps users keep track of business expenses efficiently and easily because it can link directly with your business bank account. This is where we can help.

Money Pro automatically selects tax-deductible expenses

Money Pro pulls in expenses directly from your bank account (once you connect it). It then selects the expenses it believes are tax deductible and compiles them for tax purposes. All expenses are automatically and instantly organized. You’ll have a full list of itemized deductions automatically. 

Make changes on the go

You can also manually de-select any items that aren’t tax deductible. Just click the box next to the expense, and it disappears. This makes it easy to separate expenses into “tax” and “non-tax.”

Easy Business Expense Tracking

Additionally, the app makes it easier than ever to track business expenses by displaying all of your expense tracking information in one convenient, user-friendly dashboard. That way, everything you need is right at your fingertips.

We make it easier than ever to view, find, sort, and track expenses — bringing your tracking strategy into the future and away from time-consuming manual efforts and the frustration of potentially missed deductions.

Compare ZenBusiness Money and QuickBooks.

Tracking Tax-Deductible Expenses Manually

If you opt not to use a business expense tracker app like ours, you’ll need to keep up with your tax-deductible expenses manually. While the old-fashioned way will certainly require more time and effort, here are a few tips to help you organize your strategy and make sure you’re being thorough:

• Pay for all business expenses out of your business bank account (or with a business credit card) to keep personal expenses and business expenses separate.
• Pay for business expenses with checks, debit cards, and credit cards (never cash) to keep expenditures more trackable. If you ever have to use cash, make a written record of it.
• Keep a log of all business expenses (either in accounting software, a virtual cloud, or in a physical notebook/filing system), with expenditure types separated into categories.
• Keep accurate records of your payroll expenses.
• Keep all bills related to your business (company phone bills, employee cell phone bills, office rent bills, etc.).
• Safeguard all of your expense records (receipts, invoices, bills, etc.).

More Tips for Small Business Owners on Organizing Receipts and Expenses

As you can imagine, knowing how to manage business expenses and tax deductions while staying organized with a manual tracking method can become pretty unwieldy. A great way to compile everything in one place is by maintaining a comprehensive spreadsheet that maps out all expenditures.

You can set your spreadsheet up however you’d like, but we recommend devoting specific tabs to different types of expenses or date ranges. You can also split expenses up by category: fixed, variable, period, and so on. There are lots of expense tracking spreadsheet templates that you can use to organize your tax deductions.

Better yet, as we’ve already mentioned, you can use a tax deduction tracker app to take most of the manual effort and guesswork out of the entire process. 

Our Money Pro app was created to help you easily keep track of deductible business expenses, streamline your expenditure information, and help ensure that no possible deductions slip through the cracks.

Plus, our app isn’t just for tracking expenses. It can also help you make sure you get paid by customers. Use it to easily send custom invoices, accept credit card and bank transfer payments, and manage your clients all from one easy-to-use dashboard.

Download the ZenBusiness Money App

Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.