When you’re just starting out in your business, it can be easy to overlook the little things — like flagging that work lunch you had with a new client as a business expense, or setting aside the receipt from a purchase of new office items.
But Laura D. Adams, host of the Money Girl podcast and author of Money Girl’s Smart Moves to Grow Rich, says that it’s something you have to get in the habit of doing early on. It will only get more complicated as your business becomes more successful; you’re essentially giving money away otherwise.
“Your business expenses are tax-deductible,” says Adams. “It can be pretty time-consuming to go through receipts one by one, so you need to have a system that organizes them.”
Fortunately, there are a number of options for tagging said expenses that are easier than sitting in a pile of receipts at the end of the year and cursing yourself while crying into a bottle of wine. If you already use a desktop system like Quicken, which imports transactions from your bank and credit cards, you can create a new account for your business, then easily separate those expenses from the program’s centralized location.
“If you are used to that sort of system,” says Adams, “it’s a great option.”
(Seed, ahem, helps separate your personal and business accounts, too.)
If you’re not accustomed to that sort of system, or if you’re looking for something different, another option is to sign up for a cloud-based system like FreshBooks. FreshBooks will do something similar to Quicken, says Adams, by pulling all your transactions into one place so you can tag them.
There are mobile-based apps for this, too. Adams likes SPENT Money, which works kinda like Tinder for your business. “It will pull in all of your transactions and allow you to do a swipe; swipe one way if it’s personal, swipe the other way if it’s business,” she says. MileIQ is a great option if you drive a lot for work, as it automatically logs your business mileage.
That being said, if you’re launching a business that involves employees or anything more complicated than a sole proprietorship or DBA, it’s likely worth your time to familiarize yourself with something like Quicken or FreshBooks. In that case, says Adams, “you are going to benefit from a desktop software that’s more robust.”
And remember, all of this is not just to make your life more difficult; it’s to save you money in the long run.
“If you’re not separating your business expenses from your personal expenses, it’s likely that you simply will not recognize that they’re tax-deductible,” says Adams. “If you don’t segment them and tally them, you won’t have a way to claim them on your tax return, and you’re losing that opportunity to actually reduce your tax liability.”