The term “business expense” is thrown around loosely these days. Flights, hotels, meals, and travel costs are all common business expenses that can be written off come tax day. With hundreds of purchases happening every month, it gets difficult to keep track of all these expenses. If you’re a freelancer, it’s even more difficult to keep track because typically you’re all alone.
If you’re able to stay organized throughout the year in recording your expenses not only will tax time be much less stressful, you’ll also save lots of money from your tax deductions. Here are three easy ways to help you keep track of your business expenses as a freelancer:
1. Know what Actually Qualifies as a Business Expense
Your plane ticket to fly across the country to meet with one of your clients most definitely qualifies as a business expense. The hot date you went on to the 5-star restaurant while you were on your trip does not qualify as a business expense. Most of the time you can use common sense to determine what qualifies and what doesn’t. If you’re still unsure you can always inquire with a tax attorney or CPA.
2. Have a Good Tracking System in Place
Everyone needs to create a system that works for them. It’s often difficult to follow someone else’s procedure verbatim since everyone tends to do things a little differently. Here are a couple ways to keep track, feel free to use them all or a mix of a few.
- Scan Receipts: If you have a smartphone, there are plenty of free apps that allow you to scan your paper receipts. That way, you can dispose of any loose paper receipts you have and not worry about losing them.
- Categorize your expenses: Separate your expenses into different categories i.e. transportation, utilities, meals, etc…This will help you stay organized.
- Use a separate credit card: Make sure you are adamant on making only business related purchases on this card.
- Stay up to date: Try your best to keep up to date on logging your expenses, this will ensure you don’t get bogged down in receipts.
- Keep a spending journal: This is a great way to “connect the dots” for your business expenses. Also, if you need to spend cash, you can keep track of that here as well.
3. Consult a Professional
Odds are if you’re a freelancer you don’t have extensive experience working in accounting. When tax time comes around, there’s no problem with consulting a professional to help you with your accounting. This often comes at a high price, but often times the time and money they’ll save you makes it well worth the investment.
Keeping track of expenses is no easy task, but if you stay on top of it, you’ll fly through tax day no problem!