Business Expenses 101

Tax time is right around the corner, so what better time to discuss business expenses…

When you run a business, any business, you have to keep good records of your earnings and expenses. Not only will the IRS want to know how much you made, and spent, during the year so your taxes can be accurately calculated, but you will want to know if your business is profitable.

What are Business Expenses?

Business expenses include any money you spend to operate your business, that you would not have otherwise had to spend.

Some examples of business expenses include:

  1. Office equipment – including furniture, computers, printers, software, cell phones, and anything else you need to operate your business.
  2. Outsourcers – writers, designers, developers, virtual assistants, and anyone else who you pay to perform some duty in your business.
  3. Learning resources – memberships, courses, e-books, private mentorships, coaching, and anything else you use to improve your knowledge.
  4. Legal and accounting – your lawyer, your accountant, court fees, and insurance costs.
  5. Office space – rent, or a portion of your house if you work at home, including a percentage of your rent/mortgage and utility bills.
  6. Business trips – travel and related expenses if you go to conferences or other events directly related to your business.
  7. Fees – services such as PayPal, Freshbooks, Aweber, GoToMeeting, your hosting account, and domain registrar.
  8. Marketing – business related advertising, event promotions, and sponsorships.
  9. Meals and entertainment – if you entertain your customers, buy gifts for clients, or purchase any business related meals.
  10. Mileage – if you use your vehicle to travel for business related meetings and events.

Generally speaking, anything that can legitimately be connected directly to your business can be classified as a business expense and may be tax deductible.

Keeping Good Records

Record keeping, especially for a small business, doesn’t have to be complicated. A spreadsheet will do the trick if you have very few business expenses. You can set up your spreadsheet similar to a checking account register, and record each transaction and what it was for. Then file the actual receipt in a folder marked with the year. When it’s time to do your taxes, you’ll be able to easily calculate how much you spent and in what categories.

The best solution is to use accounting software such as Quickbooks or Freshbooks. Many bookkeepers will be happy to set up a system for you, and then it’s a simple matter of just recording each expense and selecting which category it belongs to. At the end of the year, email the file to your accountant and they will be able to prepare your taxes using that information.

How you record your expenses is not nearly as important as is simply doing it. Regardless of the system you choose, be sure to use it consistently. You’ll find tax time much less complicated if you spend a few minutes each week recording expenses and income, than if you try to do it all at once in January.

Do you have any best practices or programs that help to keep you organized?

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