Taxes can be one of the most overwhelming parts of owning a business. Everyone is constantly saying, "It's a right off!" but if you haven't kept track of all those expenses, you'll never end up actually writing if off.
I've been there, the first year in my business I had a lot of expenses, but I didn't keep track of them. Once tax season arrived it was a nightmare trying to decipher which expenses were personal and which were business expenses.
In this blog post I'm sharing 4 secrets to keep track of write offs and how to make the process easier in the future. I'll be covering:
What is a write off and how does it work?
What expenses can I write off?
How do I find my write offs?
How can I track and organize my write offs easily?
If you're sick of being overwhelmed, todays the day we make it simple! Let's dive in!
#1 What is a write off and how does it work?
When I started my business I didn't fully understand how a write off really worked. Once tax season arrived, I realized there were a lot of expenses I had that I wouldn't have had without owning my own business. For example, going out for coffee or lunch with potential clients, online subscriptions, website costs, business cards, shipping supplies, office supplies, the list goes on.
All of these are business expenses. I realized, the more write offs I had kept track of the less money I was paying out in taxes. I spent hours looking over my bank statements and sifting through past emails to see how many other write offs I had. It took hours, ultimately I ended up giving up. I knew there were more, but I didn't have time to spend hours looking for them.
From that point on, I knew I had to come up with a better system to keep track of them throughout the year. That way once taxes we’re due I wasn't spending hours looking through every expense for the last year. Once I came up with this system I felt so much more confident. I met with my financial planner to go over the system with him and make sure I was on the right track.
He was impressed. He told me he hadn't seen anyone keep track this well in years. I was onto something! Once the next tax season came around, I felt so much more prepared and submitted everything in less than an hour or so. What a breeze! Before we talk through how to track write offs. Let's dive into what expenses are actually considered write offs.
#2 What expenses can I write off?
It's always good to keep expenses as low as possible, but for the expenses you can't do away with keeping track of them is going to keep more money in your pocket come tax season! So what expenses can you write off? Here's a list to get you started:
-Business cards, flyers, and newspaper ads
-Internet, television, and radio advertising
-Advertising at a charitable or community event
Car + Truck
-Mileage tracked during business drives
I use an app called Mile IQ for tracking my mileage. It’s so simple, I swipe left for personal drives and right for business drives and at the end of the month I can email the pdf to myself. This pdf includes every business drive on it. It lists the amount of business miles tracked as well as the amount of money all those drives will be worth as a write off! The app is less than $7 a month and last year I tracked over $1,500 in business drives - definitely worth it. Plus that monthly cost for the app is a write off ;) WIN WIN.
Legal or Professional Services
-Fees paid for tax advice for your business
-Feeds paid for the preparation of the tax forms for your business
-Legal fees paid to an attorney that were ordinary and necessary to the operation of your business
Business Meals and Entertainment
-Meals while traveling overnight on business
-A business lunch with a customer or client
-Refreshments given out at an open house
-A seperate phone line or internet service
-Office supplies and postage
-Maintenance and cleaning expenses
-Merchandise bought for sale to customers
-Material used to produce goods or assemble good for sale
-Print cartridges and printer paper
-Cleaning material and supplies
-Professional books, instruments, and equipment if normally used up within one year
Taxes or Licenses
-Federal highway use tax
-Property tax on a business property
Bonus Tip: Keep this list in the notes app on your phone so you'll always know whether or a not an expense can count as a write off! Here's an article from Turbo Tax with a full list of write offs.
#3 How to Find Your Write Offs
First, if you don't have a checking account for your business, I highly suggest you open one! It makes it so much easier if all business expenses come out of the same account. If you don't have one yet and you're still spending all your business expenses with your personal checking account, don't fret, this is where I was too when I first created this system. Whether your expenses all come out of the same account, or one account this system can work for you.
To make this simple, let's start with highlighting your business expenses on your bank statement. You can have them mailed to you, print them online, or go into your bank and request they print them out for you. Let's just start with last month's business expenses. Now you've got your bank statement in hand, grab a highlighter and highlight any business expenses from the last 30 days.
#4 Tracking & Organizing Write Offs
I like to use Google Drive to keep track of receipts and transactions. For this you'll need to have a gmail account. Once you sign in, open Google Drive. Create a new folder and label it "Write Offs". Within that folder you'll want to create a folder for each month of the year. Within each month you'll need a folder for receipts.
Now open a Google Sheets Doc, this is simply Google's version of excel. By setting this up you'll be able to track your expenses anywhere! First, open a new google sheet and add the following columns: Receipts, Date, Amount, Category, Item.
The 'Receipt' column is where you can track whether you have the receipt.
The 'Date' column will be the date the money came out of your account.
The 'Amount' column is the total amount you spent on the transaction.
The 'Category' column will be from one of the categories above.
The 'Item' column allows you to write in more details about the transaction.
Here's an example of how I set it up:
As you categorize each transaction make sure you've got the receipt for it saved in your receipts folder for that month. I like to use the Scannable app. This allows me to scan the receipt and upload to Google Drive. Now that you've got the Google sheet set up, look through the past month's expenses you highlighted on your bank statement. Type up each transactions information and keep going until you finish for that month!
And that's it! If you're tracking your write offs like this each month, all you'll have to do at the end of the year is add up each category and you've got every single write off with receipts to prove it!
This is a great place to start as you're growing your own small business or side hustle. As your business grows and your income increases it's very important to find a tax professional you trust.
My friend Kele, does all of this professionally. Once my business got to a certain point, I really wanted to make sure I was having someone else submitting everything. I still keep track of all my expenses, but it feels good to know it's being submitted by a professional! If you're looking for one on one help or simply someone you can reach out to for questions, I'd highly recommend Kele! If you're still wanting to submit them yourself, Turbo Tax is a great online resource. Click here to save an additional $20 when you file as Self-Employed. You're welcome ;)
Here's an overview of what we covered:
Highlight the transactions that are write offs
Type those up in a spreadsheet & categorize
Make sure to upload your receipts for each transaction
Don't forget to check if you need to pay quarterly taxes. If you're required to and you don't, you'll end up paying a fine when it comes to filing your taxes.
PLEASE KNOW: I am not a licensed cpa, tax attorney, or certified to give tax advice. This is not legal accounting advice. This is purely what I’ve learned and found that’s worked best for me.