What to Do If You Haven't Been Tracking Your Business Expenses
The gist
Deducting business expenses can save thousands at tax time for those self-employed or with side jobs.
Taxes are paid on business profit, which is income minus business expenses. Deducting expenses reduces the taxable amount.
Tracking expenses throughout the year ensures maximum deductions and simplifies tax filing.
If you haven't tracked expenses, it's not too late. Familiarize yourself with common deductible expenses and gather proof of your business expenses.
Documentation is crucial for deductions; keep receipts for at least three years post-filing.
In this article
Being self-employed or working side jobs comes with the perk of deducting business expenses, which can lead to significant tax savings if properly tracked. By understanding qualified expenses and tracking these items, you can ensure you're only taxed on your actual profit. If you've missed out on tracking throughout the year, there are still ways to recover and take advantage of your business expenses with some extra effort.
By familiarizing yourself with common deductions in your field and gathering the necessary documentation, you can still capitalize on these savings. Remember, diligent record-keeping is not just about saving money now but also about being prepared should you face an audit. Receipts are always your best friend when it comes to claiming expenses, so keep receipts until you’re sure that you don’t need them.
If you’re self-employed or work one or more side jobs, deducting business expenses like mileage, lunches with clients, software, and so much more, can save you thousands of dollars at tax time.
That’s because you only have to pay taxes on your business profit, which is your business income minus any of your business expenses. Anytime you deduct a business expense, you’re essentially lowering the amount of money you’ll be taxed on — and putting those savings right back into your pocket. This is when tracking business expenses can come in handy.
Tracking business expenses throughout the year is the best way to manage your deductions. When you record your business expenses as you pay for them, you make sure you don’t miss out on any savings. Plus, it makes filing your taxes a lot simpler and faster because you have all of your business expense records in one place.
I haven’t been tracking business expenses … what now?
If you haven’t been tracking business expenses throughout the year, you’re not out of luck. With some extra work, you can still track down those savings. Here’s what to do:
1. Get to know common deductible business expenses in your line of work.
In order to be deductible, a business expense must be both ordinary (commonly accepted in your trade) and necessary (helpful and appropriate for your business). Some common business expenses most freelancers and side jobs workers can deduct include:
Business mileage
Office supplies
Cell phone costs (if you use your phone for work)
Business licenses or certifications
Health insurance
There are also business expenses that are unique to different types of self-employed work. For example, rideshare drivers can deduct the water bottles and mints they keep in their cars for passengers. Use our guide to identify common expenses in your line of work.
2. Track down proof of your business expenses.
Once you’re up to speed on the types of business expenses you can deduct, it’s time to track down which of those business expenses you spent money on during the year. Remember that the IRS requires documentation that shows the amount, time, place, and purpose of every expense you deduct. This is where receipts really come in handy.
Insider tip: Keep any business receipts for at least three years after you file your taxes in case you’re ever audited.
If you don’t have paper receipts, you can still deduct those expenses, but you’ll need to do some digging:
Take a look at your credit card and bank statements, calendar, and business records to find proof of business-related transactions, like coffee with a client or a monthly Spotify subscription.
Don’t forget that many expenses, like your phone, utility, and health insurance bills, are often recorded online. All you need to do is log into your different accounts and find how much you paid throughout the year.
If you also forgot to track your business mileage during the year, our tip is to use old maintenance receipts (like when you get your oil changed) to find past odometer readings. Read this guide for more tips.
Want a headache-free tax season next year?
It’s never too late to start tracking your business expenses!
The FREE Stride app is your one-stop platform to tackle all the challenges of independent work. It can help you save time and money on taxes by automatically tracking your miles and expenses, surfacing money-saving deductions, and getting your forms IRS-ready.
