Tracking business expenses isn't about the spreadsheet or the app. It's about being able to answer one question for every dollar that left the business: what was it for, and where's the proof? A system that answers that question every month is one that holds up at tax time, in an audit and when you want to know where the money went.
Start with a separate account and card
The easiest expense to track is one that never mixes with your personal spending. Open a business bank account and use one card for business purchases only. Every charge on that statement is then a business expense waiting for its receipt, and you'll never have to pick through a grocery bill to find the printer ink.
Keep the receipt, not just the statement
A card statement shows a merchant and a total. That isn't enough on its own. The IRS says supporting documents should show who you paid, how much, proof that you paid, the date, and enough of a description to show the cost was for the business, and that a combination of documents may be needed. A receipt or invoice plus the card statement usually covers it.
In Canada, the CRA expects you to keep records and receipts for six years from the end of the tax year they relate to. If you're registered for GST/HST, the receipt also has to support your input tax credit: from $100, that means the supplier's registration number and the tax charged. See how long to keep receipts for the full rules.
Choose one place to record everything
Pick one of these and stick with it:
- A spreadsheet, if you have a handful of expenses a month. Our free expense tracker template has the columns already set up.
- Accounting software with a bank feed, which imports every transaction and lets you attach the receipt to it.
- An expense app, if receipts arrive faster than you can file them or more than one person spends.
The choice matters less than using only one. Expenses split across a notebook, two spreadsheets and a phone are the ones that get missed. If you're comparing apps, see the best expense tracker apps.
Use categories that match your tax return
Sort expenses into the categories you'll report them in. Tax time then becomes a total rather than a project. US sole proprietors report expenses on the lines of Schedule C; self-employed Canadians use form T2125. Common categories include advertising, vehicle, meals, office supplies, rent, software, phone and internet, professional fees and travel.
Keep the categories few and consistent. A new category for every unusual purchase makes the totals harder to read, not easier.
Capture receipts the day they arrive
Receipts reach a business three ways, and each needs its own habit:
- Paper from the register: photograph it the same day, before it fades or goes through the wash.
- Email from online orders and subscriptions: file it to one folder or label as it lands. Our guide to organizing receipts covers filters for Gmail and Outlook.
- Portals, for utilities, phone plans and software that post the bill in your account instead of sending it: download them on a set day each month.
Note the expenses with special rules
A few expenses need more than a receipt. Business meals are generally only half deductible: the IRS allows 50% of a business meal when you or an employee is present and it isn't lavish, and the CRA limits food, beverages and entertainment to 50% of the lesser of what you spent and a reasonable amount. Write who you met and why on the receipt or in the expense note while you still remember.
Vehicle expenses need a log of business trips. Record the date, the destination, the purpose and the distance, and use the mileage calculator to turn kilometres or miles into an amount at the current rate.
Check it every month
Once a month, put your bank and card statements next to your records and go line by line. Every charge should have a receipt and a category. Anything missing is still easy to find a few weeks later, and close to impossible to find in April. This half hour is what turns a pile of receipts into books you can trust.
Track business expenses without the busywork
Smartbills does the capturing for you. Photograph paper receipts in the Smartbills app, which reads the merchant, the items and each tax line. Connect your mailbox and email receipt capture pulls receipts and invoices out of Gmail, Outlook or any IMAP account about every 30 minutes. When more than one person spends, expense management matches each card transaction to its receipt, checks it against your policy and syncs it to QuickBooks or Xero.