- Hi everyone.
I'm Attorney Aiden Durham with 180 Law Co. in Colorado,
and you are watching All Up In Yo' Business.
(upbeat music) (keyboard clattering)
In this episode of All Up In Yo' Business,
we're gonna talk about tracking business expenses.
I'm gonna give you guys some tips
for tracking business expenses,
let you know why it's so important to do so,
and then we're gonna cap it off with some
of my favorite apps and tools
for tracking business expenses,
but first don't forget to like, subscribe, and share,
and check the description
for links to additional information and resources.
Okay, so most of us didn't decide to be self-employed
because we wanted to be bookkeepers,
but nevertheless, a fun side effect
of being self-employed is
that we often get to be our own bookkeepers, web designers,
receptionists, and our own lawyers, sometimes,
despite my protests otherwise,
but regardless, even if you have a bookkeeper, accountant,
CPA, or somebody else handling your businesses bookkeeping
and accounting, properly tracking your business expenses
is going to make all the difference.
And if you can set up a good system
for tracking your expenses early on from the very inception
of your business, then it's gonna make everything else
that much smoother and more efficient moving forward.
We can also easily get lost in the day-to-day
of everything else, having to do with our businesses.
So entering all your receipts
and doing the books gets pushed back
to the back burner and next thing we know, boom,
it's three months later and we're spending
an entire weekend trying to get caught up,
but if you've got a good system in place
and take advantage of different tools and apps and programs,
the rest of it can be set up largely on autopilot.
So why is it important to keep good track
of business expenses?
Easy, because it's gonna help you save money on taxes.
When we prepare a tax return every year,
we have to tell the IRS how much
and what kind of income we've earned over the past year
and if we earn income from being self-employed,
we usually need to use Schedule C to report that income.
In a nutshell, we use Schedule C to tell the IRS
how much revenue your business received,
how much you spent to keep your business running
and the net income or loss for the year.
We don't pay taxes on the revenue our business receipts.
We only pay taxes on the profit or net income,
which is the money we received minus the money we spent,
any ordinary and necessary payments that you make
to run your business are considered business expenses
and business expenses are deductible on your Schedule C,
meaning that we get to subtract those expenses
from our businesses taxable income.
Business expenses potentially can be anything.
Again, as long as it's considered ordinary and necessary,
then it's gonna be a deductible business expense,
but here are a few examples of common business expenses,
advertising, bank fees, consulting fees, professional fees,
contract labor, dues and subscriptions, mileage,
office supplies, postage, printing, payroll, software,
travel, utilities, and so on.
So that's why it's so important to track business expenses,
so we know what to report on our taxes
and so we don't miss any potential business deductions
and end up paying more in taxes than we actually have to.
So let's say if the business made 100,000 last year
and you don't deduct any of your business expenses,
then you're paying tax on the full 100,000.
Let's pretend your average tax rate is 30%,
that means you're paying 30,000 in taxes.
And by the way, I'm saying 30%, just as an example,
I don't mean that all of you are gonna be taxed at 30%,
but if you properly tracked your business expenses
and they total, let's say, $40,000,
that 40,000 is deducted from the 100,000
and now you're only paying taxes on the $60,000
of profit or net income.
That means you're paying $18,000 in taxes
as opposed to 30,000, and that's a pretty big difference,
but we're also doing this to make things easier
on ourselves come tax time.
We don't want
to waste our valuable time combing through boxes of receipts
and trying to piece together our tax returns in time
for the filing deadline
or even worse pay somebody like our accountant or CPA
to try to make sense of our chaos.
And it's not just enough that we track
what the expenses are.
We often need to remember why we spent that money.
Meals for example, are often deductible business expenses,
but it makes a difference if we bought that meal,
let's say, during a business meeting,
or if we bought it while we were on a business trip.
Again, we can deduct anything
that is ordinary and necessary,
and we wanna be able to prove that it was both ordinary
and necessary if the IRS ever comes and knock in.
So having a good system in place
to track your expenses is gonna save us time and money
in addition to reducing your overall tax bill.
Best practice is to make a regular habit
of tracking business expenses throughout the year.
We don't wanna wait until the end of the year
to record all of our expenses.
If we regularly track our business expenses
throughout the year, that makes it easier
for us to keep a close eye
on our business's financial health, makes it easier
to budget and put money aside in savings,
and helps us see exactly where every dollar is going.
It doesn't matter if you do it daily, weekly,
monthly, quarterly, just make sure you dedicate some time
on a regular basis to track your expenses in bookkeeping,
or even better take advantage of the millions of programs,
apps, software, and other tools available
to automate all of it for you.
Seriously, there's like actually zero reason
for you to manually track all
of your business expenses or income.
We can quite literally use technology
to do all of that for us.
So here are some of my favorite tools for tracking
and managing business expenses and finances.
Let's start with the free stuff
because it's cool if you don't have
to spend more money just to track
where you're already spending money.
First your bank.
A lot of banks are starting
to incorporate expense tracking tools
into their online banking platforms.
I bank with Chase and I have a Chase business credit card.
You can categorize payments and expenses
and see your spending report right there
in the online banking platform.
Now I mentioned this because it's probably already available
for a lot of you and it's free except for any fees
that your bank's already charging you,
but I wouldn't totally rely on this method
of tracking expenses.
If you have very, very few expenses
then I guess it could work just fine for you,
but most of us are gonna want something
a bit more substantial.
Keeping with the simple
and free trend Mint is another really good option.
If you're not familiar with Mint,
it's an online budgeting platform that connects
to your bank accounts
and automatically downloads all of your transactions,
then you can categorize all of your income
and expenses and create spending budgets
and see where all of your money is going.
I have been a longtime fan of Mint,
but mostly for my personal budgeting.
Kind of like what I was saying about Chase,
you can view spending reports
and track where you're spending money,
but it's not really gonna give you like detailed reports
or financial statements.
Now, if you're old school or just a fan of spreadsheets,
Excel is a really good option.
I guess it's not technically free since you still have
to buy the software,
but I'm including it in the free category or Google Sheets,
which is actually free, most of the time.
You can literally just
have a simple spreadsheet of expenses.
The dollar amount, who was paid to, why,
the date of the expense, it doesn't have to be fancy,
or it can be fancy and you can create spreadsheets
to track and categorize expenses
and cut cashflow and budgeting and more.
So those are a few simple and mostly free options
for some basic expense tracking,
but most of us are gonna need a little bit more
and this usually means
some kind of full blown accounting software.
There are a lot of options out there,
but there are a few things that we wanna look for
when we're trying to decide which one to go with.
First, make sure it's a program that syncs with your bank.
Almost all of them do that these days,
but it's gonna make things so much easier
if your accounting program can just automatically pull in
all of your transaction data from your bank,
as opposed to you manually entering that information.
Find one that offers a mobile app,
so you can record your expenses on the go.
A lot of programs have apps
that include automatic mileage trackers, for example.
If you're a gig worker or if you drive a lot for work,
a mileage tracking app is gonna be a lifesaver.
It's also great if the mobile app allows you
to scan and save digital copies of your receipts.
It's good practice to hold onto all of your receipts
for at least three years in case of an IRS audit.
Many programs allow you to scan your receipts on the go
and you can attach them to each transaction
for further record keeping.
Finally, bonus points, if it integrates with other apps.
A lot of programs have the ability
to integrate with e-commerce platforms like Shopify,
you can integrate with your CRM systems
or email marketing tools and so on.
So most programs, you're gonna have to pay for it
if you want all of the great bells and whistles,
but there are some really good options
that are free or offer free plans,
and I'm gonna link to all of these things
in the description, so you guys can check 'em out later.
Wave, Wave apps has a great accounting software
that is completely free to use.
I'm a big fan of Wave.
ZipBooks is another popular one,
and they offer a free plan, though a lot
of their features are gonna require the paid plan.
One that I think is very cool is GnuCash spelled G-N-UCash.
It's a free open source software
that has a lot of accounting capabilities.
The only downside though, is that since it's open source,
there's not really a whole ton of support available
if you need help setting it up or with troubleshooting.
Like I said, you can get a lot out of these for free,
but the additional features that you get
with some of the paid options really
might be worth the costs, which brings me
to some of the more traditional accounting
and bookkeeping tools.
QuickBooks is a heavy hitter in this category,
and it does way more than just tracking your expenses.
QuickBooks really can be used to handle all
of your finances, running payroll, invoicing,
and accepting online payments,
tracking your expenses and bills,
and of course, managing taxes and so on and so forth,
but QuickBooks can easily become pretty overwhelming just
because of how much it can do.
So if you're brand new to the scene
and you don't already have an accounting
or bookkeeping background, it might be too much for you,
unless you're gonna hire somebody
to set it up and manage it for you.
But FreshBooks offers a lot of similar features
to QuickBooks, but it's a bit more simplified
and would be a good option for service-based businesses
and solopreneurs and freelancers and stuff.
And then Xero is another good option, similar
to QuickBooks and FreshBooks.
Lastly, outside of these full blown accounting programs,
there are a lot of great apps on your phone that can help
with tracking business related expenses.
MileIQ, I love MileIQ.
I used MileIQ's mileage tracking app for like six years.
I only just recently canceled a few months ago only
because of COVID-19 though
and because I'm not driving for business anymore,
I really just stay home now,
but up until then, I used it on a daily basis
and it was well worth it.
MileIQ uses GPS to automatically track all of your mileage
and then you can categorize your trips
and calculate your business mileage.
If you're a gig worker or you drive a lot for work,
MileIQ is gonna be life-changing.
Everlance is a another app that's really similar
to MileIQ from what I understand,
I haven't used it myself,
but it does have a GPS tracker to log your mileage
and you can stand digital copies of receipts
into the app as well.
Both MileIQ and Everlance, they offer free
and paid plans.
Shoeboxed is a really cool app
that I recently learned about,
that it helps with tracking
and categorizing your receipts too.
And lastly, Expensify.
This is gonna be primarily useful
if you have employees who are gonna have a lot
of reimbursable expenses,
or if you have a lot of expenses
that you reimbursed to yourself.
Again, I'm gonna link to all of these apps
and stuff down in the description,
if you guys wanna check 'em out.
So when it comes to tracking expenses,
the bottom line is this, have a system in place
from the very beginning,
make it a regular habit to track review,
and categorize your expenses,
and finally, take advantage of tools
and programs to automate as much as possible.
That's all for this episode, folks.
Drop a comment below, let me know what you think
and don't forget to check the description for links
to all the products that I mentioned
as well as additional information and resources.
Thank you all so much for watching.
I'm Aiden Durham, and I'll see you next time.
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