One of the largest issues small business owners face is keeping track of their expenses. Not only does this make keeping the books difficult, it could potentially have major tax implications. In this post, we’ll dive into some of the key things to be aware of when it comes to small business expense management and tracking.

Expense Management for Small Business: Keep Track of Every Business Expense

Whether you’re using an app, a spreadsheet or have a box full of receipts you hand to your tax pro, It’s vital to keep track of every single business expense. Let’s go over three key reasons why it’s important to keep track of your business costs on a continual basis.

Financial Health

Is your business doing well? You might bring in a lot in revenue but what are you profiting at the end of the day? If you’re not tracking every single business expense, it’s impossible to have a complete picture of your financial health. Without tracking these costs, it’s impossible to have an accurate business balance sheet.

Business Expense Tax Deductions

Along with knowing where your business stands, tracking every single business expense prepares you to take the largest tax deduction you’re entitled to. The more deductions you can take, the lower your taxable income will be, which means you’ll have more money in your pocket.

The IRS isn’t just going to take your word for it, though. You’ll need proper documentation for all your deductions. If you ever face a dreaded audit and don’t have proper records, the IRS can deny your deduction and impose penalties and fines.

Don’t let that happen. Your business expenses are a source of an extremely valuable tax deduction every year. You can deduct business expenses as long as they’re:

• Ordinary and necessary
• Directly related to your business
• For a reasonable amount.

The IRS can be particular about business expenses because some have tried to abuse this. You’d be surprised as what can fall into these categories, though.

You may be keeping track of your major expenses but it’s important to track all of them so you can get the largest deduction possible. Some often-overlooked business expenses are:

• Vehicle-related expenses: Along with the valuable mileage deduction, your tolls and parking fees for business reasons can also be written off.
• Startup costs: It takes a lot of costs to get a business off the ground. Whether it’s permits, market research or rent before your business opens
• Entertainment and meals: Remember, you can deduct some of your meals and entertainment costs when it comes to business but the IRS limits the size of these deductions.

Business Expense Reimbursements

If your small business has employees—especially those who work in the field—you may have to provide expense reimbursements. Whether it’s a salesperson or somebody who picks up supplies, there will inevitably be times when they need to use their own money for something business-related.

The best businesses have a process for business expense reimbursements that ensures the expenses are accurate and reimbursements get made in a timely manner. It’s pretty clear why it’s important for these to be accurate but the timeliness is also important.

It’s good to have these handled swiftly in order to have a clear picture of your books. Another positive is that timely reimbursements can boost employee morale. Finally, if your reimbursements are handled through what’s known as an “accountable plan,” you can also take a deduction on that amount as a business expense.

How Automating Expense Tracking and Management Makes Your Life Easier

Tracking every single expense can be a pain but we’ve spelled out the reasons why it’s worth it. Many successful small business owners lean on technology to handle this. Otherwise, you may wind up with even more paperwork or even not know what you spent because you or employees misplaced receipts.

There are three main benefits of automating your expense management:

• Accuracy
• Security
• Efficiency

Unless you’re near-perfect, it’s tough to make sure you’re tracking every single expense. It really helps if your solution can track and log these expenses in real time. You’ll also want to make sure these can be stored in the cloud, so you never have to worry about losing receipts or invoices again. Finally, most of us aren’t amazing at this—learning on a tool allows you to focus your time and energy on doing something you’re good at.

What to Look For With Expense Tracking

There are a lot of expense tracking and management tools out there and I’d suggest finding something that fits the following criteria:

• Easy To Use
• Works How You Work
• Easy Reporting

Make sure you pick something that you’re actually going to use. That means the interface must be simple to pick up and master. It must be available on all the devices you’d want to use. Finally, the information should be securely stored in the cloud so you can easily access it.

Reporting is going to be critical and integration with your accounting software is nice, but look for flexibility first and foremost. An expense tool that provides reports in easy-to-use formats will enable you, your employees and your bookkeepers to be working on the same page even if everybody uses slightly different software.

This article was prepared for MileIQ. If you are a tax professional, click here to automatically start tracking your business travel.