How To Track Business Expenses

As a business owner, freelancer, or independent contractor, tracking business expenses isn’t just about staying organized, it’s about maximizing tax deductions and keeping more of what you earn. But between client lunches, software subscriptions, mileage, and office supplies, how do you track everything efficiently without getting overwhelmed?

In this guide, we’ll walk through the best ways to track business expenses, common mistakes to avoid, and tools that simplify the process, so you can focus on running your business, not paperwork.

The Importance of Tracking Business Expenses

Running a business isn’t just about making money, it’s about keeping as much of it as possible. Every dollar you spend on your business is an opportunity to lower your taxable income, maximize deductions, and increase your bottom line. But without a solid system for tracking expenses, it’s easy to let valuable tax write-offs slip through the cracks.

Think about it: how many times have you forgotten to save a receipt, lost track of a reimbursable expense, or mixed business and personal spending? These small mistakes can cost you hundreds or even thousands of dollars over time. Beyond taxes, clear expense tracking helps you stay in control of your finances, plan for growth, and protect yourself in case of an audit. It’s not just about compliance, it’s about financial confidence and peace of mind.

Keeping accurate expense records is crucial for several reasons:

✅ Maximizing Tax Deductions – Every eligible business expense lowers your taxable income, reducing how much you owe at tax time.
✅ Avoiding IRS Audits – Well-documented expenses mean no stress if you’re ever audited, your records back up your claims.
✅ Managing Cash Flow – Tracking expenses helps you understand where your money is going, so you can cut unnecessary costs and budget better.
✅ Securing Business Loans & Credit – Lenders want clear financial records before approving loans or lines of credit.

Now let's dive into how you can keep track of expenses like a pro.

How to Track Business Expenses (The Right Way)

There’s a lot of poor advice on the internet (duh). Some say to track everything manually, others swear by complex accounting software, and then there are those who don’t track expenses at all until tax season, or some who just recommend "guessing"(yikes).

Let’s cut through the noise. If you’re self-employed, a freelancer, or a small business owner, tracking your business expenses the right way means finding a system for you. Here are our steps on how to do that.

Step 1: Understand What Counts as a Business Expense

Not all expenses are deductible, so it’s important to know what qualifies as a legitimate business expense. According to the IRS, a deductible business expense must be ordinary and necessary for running your business.

Common Business Expenses to Track:

• Mileage & Transportation – Business-related driving, Uber/Lyft rides, and flights
• Office Supplies & Equipment – Laptops, printers, stationery
• Home Office Deduction – A portion of rent, utilities, and internet (if you work from home)
• Marketing & Advertising – Website hosting, online ads, social media promotions
• Software & Subscriptions – Accounting software, project management tools, design programs
• Meals & Entertainment – Client lunches and networking events (50% deductible)
• Education & Training – Courses, workshops, industry conferences
• Business Insurance – Liability insurance, professional coverage

If you’re ever unsure whether an expense is deductible, save the receipt anyway, it’s better to have documentation for later when it's appropriate to speak with a tax professional or your employer than to miss out on potential savings.

Step 2: Choose Your Expense Tracking Method

It pains us to say this, but there’s truly no one-size-fits-all approach to expense tracking, so choose a method that works best for your workflow. Like the old saying goes, "the best system is that one that you'll use" (paraphrasing)

📲 Option 1: Business Expense Tracking Apps (Best for Automation)

Gone are the days of manually logging every business expense or sifting through a pile of receipts come tax time. Business expense tracking apps, like Everlance, automate the process, ensuring every mile and dollar is accounted for with minimal effort. Whether you’re a freelancer, rideshare driver, or small business owner, automation can save you hours of administrative work and prevent costly mistakes.

Key features to look for include:

✅ Automatic mileage tracking (great for self-employed workers)
✅ Bank & credit card syncing (pulls in transactions automatically)
✅ Receipts & categorization (just snap a photo and go!)
✅ AI Deduction Finder (find any business expenses you missed)
✅ IRS-compliant tax reports

📊 Option 2: Spreadsheets (Manual Tracking)

A simple Excel or Google Sheets template can work for new or small businesses. Track key details like:

• Date
• Vendor
• Amount
• Category
• Payment Method

and any notes you want to keep about the purpose of the expenses.

This can be time consuming, and runs the risk of you forgetting to log or misplacing your receipts. But it's completely free for anyone!

📜 Option 3: Accounting Software (Best for Larger Scale Businesses)

For businesses with more complex financial needs, accounting software provides a comprehensive solution beyond just expense tracking. Platforms like FreshBooks and Xero integrate with bank accounts, track invoices, generate financial reports, and help manage cash flow, all in one place.

This level of software is particularly great if you have a need for invoicing, payroll, and other complex business situations that can't be handled in some of the more simple apps, or on a spreadsheet.

Downsides of these types of programs are they are generally very expensive, come with a steep learning curve, and often times overly complex if you just need some basic expense management tools.

Which Option Should You Choose?

• Need a lightweight, automated solution for tracking expenses, mileage, and tax deductions? → Use Everlance.
• Need full financial tracking, invoicing, and payroll management? → Consider Freshbooks or Xero.

Step 3: Keep Receipts & Documentation

One of the biggest mistakes business owners make is not keeping proper records of their expenses. The IRS requires proof for deductions, and if you’re ever audited, missing documentation could mean losing valuable tax write-offs.

Here’s how to store them

📸 Snap & Upload: Use Everlance or another app to scan and store digital copies of receipts.
📂 Use Cloud Storage: Keep receipts organized in Google Drive, Dropbox, or Evernote.
💳 Separate Business & Personal Expenses: Either use a dedicated business bank account or credit card to avoid mix-ups, or an expense management tool that allows you to classify transactions as work or personal.

💡 Pro Tip: Keep receipts for at least three years in case of an audit, but some expenses (like asset purchases) may need to be kept longer for depreciation tracking.

Step 4: Categorize Expenses Regularly

Don’t wait until tax season to organize your expenses! Categorizing your expenses on a weekly or monthly basis will help you stay ahead, identify spending patterns, and avoid surprises.

✔ Use Consistent Categories – Stick to IRS-recognized categories like “Office Supplies,” “Marketing,” “Travel,” and “Meals & Entertainment.”
✔ Tag & Label Expenses – Add notes or tags to transactions to clarify their business purpose. (Example: “Client meeting with John – Lunch”)
✔ Automate With Rules – Expense tracking apps like Everlance allow you to set up automatic rules for recurring transactions. (Example: Any purchase from Zoom = “Business Software Subscription”)
✔ Review Monthly Reports – Take 5-10 minutes each month to check your spending trends. Are you spending too much in one area? Missing deductions?

Step 5: Generate Compliant Reports

When tax season rolls around, you don’t want to be scrambling to pull together expense records and receipts. The key to stress-free tax filing is having clean, well-organized reports that summarize your deductible business expenses and mileage.

With an expense tracking app like Everlance, you can:

📌 Use an Expense Tracking App – With Everlance, you can generate IRS-compliant reports in seconds, with all your categorized expenses, receipts, and mileage deductions in one place.
📌 Export Spreadsheets for Your Accountant – If you work with a tax professional, a clean CSV or PDF report with itemized expenses makes their job easier (and could save you money on tax prep fees).
📌 Upload to Tax Software – Tools like H&R Block or FreeTaxUSA allow you to upload your CSVs to have proof of your deductions, or some expense trackers have integrated tax filing, so you can be building your return throughout the year!

Tracking business expenses doesn’t have to be a hassle. Automate it with the right tools, keep receipts organized, and review your finances regularly.