How to Track Business Expenses Like a Pro

Every business expense you properly track is a potential tax deduction. Every expense you lose track of is money you might pay taxes on unnecessarily.

Good expense tracking isn’t just about compliance—it’s about keeping more of what you earn and understanding where your money goes.

Here’s how to track expenses effectively.

Why Expense Tracking Matters

Tax Deductions

Legitimate business expenses reduce your taxable income. A $1,000 expense you track properly might save you $250-350 in taxes (depending on your bracket).

A $1,000 expense you don’t track? You just donated to the IRS.

Financial Visibility

You can’t control what you don’t see. Expense tracking reveals:

Where money actually goes
Spending trends over time
Areas of waste or opportunity
Budget vs. actual performance

Audit Protection

If the IRS audits you:

No documentation = no deduction
Good records = defensible deductions
Organized systems = faster, less painful audits

Business Decision-Making

Accurate expense data enables:

Pricing decisions (knowing true costs)
Profitability analysis (by project, customer, product)
Budget setting and monitoring
Cost reduction efforts

The Expense Tracking System

Step 1: Capture Everything

The moment an expense happens, capture it:

Credit/debit cards: Automatically captured via bank feeds Cash purchases: Take a photo immediately Online purchases: Save or forward the receipt email

The enemy of expense tracking is “I’ll do it later.” Later means forgotten.

Step 2: Categorize Properly

Every expense needs a category:

Common categories:

Advertising & Marketing
Bank Fees
Contractor/Subcontractor
Equipment
Insurance
Interest Expense
Legal & Professional Services
Meals & Entertainment
Office Supplies
Rent/Lease
Repairs & Maintenance
Software/Subscriptions
Telephone/Internet
Travel
Utilities
Vehicle/Mileage

Category tips:

Be consistent (don’t use “Supplies” and “Office Supplies” interchangeably)
Not too many categories (15-20 is usually enough)
Not too few (everything in “Miscellaneous” isn’t helpful)

Step 3: Document Business Purpose

For certain expenses, you need more than a receipt:

Meals: Who attended, business relationship, business purpose Travel: Destination, business purpose, dates Gifts: Recipient, business relationship, purpose Large purchases: What it is, business use

A note on the receipt or in your records is sufficient.

Step 4: Store Properly

Digital storage (recommended):

Accounting software attachment feature
Dedicated cloud folder (Dropbox, Google Drive)
Receipt scanning app (Dext, Expensify)

Physical storage (backup):

By month in folders
Organized and accessible
Scan periodically as backup

Retention period: Keep records 7 years minimum

Step 5: Reconcile Regularly

Weekly or monthly:

Match receipts to bank transactions
Categorize new transactions
Investigate anything unusual
Ensure nothing is missing

Receipt Management

What Receipts You Need

Always keep (technically required for amounts over $75, but keep all):

Date of purchase
Vendor name
Amount
Description of item/service

Additionally for meals:

Names and relationships of attendees
Business purpose discussed

Additionally for travel:

Business purpose of trip
Destinations

Digital Receipt Capture

Best practice: Snap a photo the moment you receive a receipt

Apps that help:

Dext (Receipt Bank): Scan, extract data, integrate with accounting
Expensify: Scan, categorize, report
Your phone camera + dedicated folder
Many accounting apps have built-in receipt capture

For email receipts:

Forward to your accounting system
Save to dedicated email folder
Download and store

Lost Receipt Solutions

If you’ve lost a receipt:

Credit card statements serve as backup
Request duplicate from vendor
Bank transaction detail
Write a detailed memo (last resort—contemporaneous records are better)

Tracking Different Expense Types

Credit Card and Bank Purchases

Easiest to track—transaction record exists automatically

Your job:

Categorize correctly
Attach receipt for backup
Note business purpose if not obvious

Cash Purchases

Hardest to track—no automatic record

System for cash:

Get a receipt
Photo immediately
Log in a cash expense tracker (app or notebook)
Transfer to accounting system weekly

Better option: Minimize cash purchases, use card for everything business

Recurring Expenses

Subscriptions, memberships, recurring services:

Set up as recurring transactions in accounting software
Review quarterly for services you no longer use
Verify amounts haven’t changed unexpectedly

Reimbursed Expenses

If you pay personally and get reimbursed:

Track the expense when you pay it
Track the reimbursement when received
Match them so you’re not double-counting

Employee Expenses

If employees incur expenses:

Clear expense policy
Expense report process
Approval workflow
Receipt requirements
Timely submission requirements

Mileage Tracking

Why Mileage Matters

Vehicle expenses are often one of the largest deductions. Without a log, you can’t claim them.

What to Track

For each business trip:

Date
Starting point
Destination
Business purpose
Miles driven

Mileage Apps

MileIQ: Automatic tracking via phone GPS, classify trips as business/personal

Everlance: Mileage + expense tracking

Stride: Free option, designed for self-employed

QuickBooks/FreshBooks: Built-in mileage tracking

Standard Mileage vs. Actual Expenses

Standard mileage: IRS rate × business miles (simpler)

Actual expenses: Track all vehicle costs × business use percentage (more complex, sometimes better)

You generally must choose one method and stick with it (with some exceptions). Most small businesses use standard mileage for simplicity.

Technology for Expense Tracking

Accounting Software

QuickBooks Online: Strong expense tracking, receipt attachment, rules for categorization

Xero: Good expense tracking, bank feeds, receipt capture

FreshBooks: Expense tracking plus invoicing focus

Wave: Free option with decent expense tracking

Receipt Apps

Dext (Receipt Bank): Photograph receipts, auto-extracts data, pushes to accounting software

Expensify: Scan, track, create expense reports

Hubdoc: Receipt capture and document storage

Bank Feeds

Connect your bank accounts and credit cards to your accounting software:

Transactions import automatically
Less manual data entry
Fewer missed transactions
Easier reconciliation

Common Expense Tracking Mistakes

Mistake 1: “I’ll Record It Later”

Later means never. Capture immediately.

Mistake 2: Mixing Personal and Business

Use separate accounts. Every mixed transaction creates work and potential errors.

Mistake 3: Over-Categorizing

100 expense categories creates chaos. Keep it simple enough to be usable.

Mistake 4: Under-Documenting

“Supplies” tells you nothing. “Office supplies - printer paper and ink” is useful.

Mistake 5: Not Reconciling

Expenses slip through cracks. Monthly reconciliation catches them.

Mistake 6: Keeping Paper Only

Paper gets lost, fades, and can’t be searched. Digital backup is essential.

Building the Habit

Daily (2 minutes)

Photograph any new receipts
Note any cash expenses

Weekly (15-30 minutes)

Categorize new bank transactions
File digital receipts
Log mileage if not using automatic app
Review for anything missing

Monthly (30-60 minutes)

Reconcile all accounts
Review expense categories for accuracy
Identify any missing receipts to chase down
Review spending vs. budget

Quarterly

Analyze expense trends
Identify cost reduction opportunities
Prepare for quarterly tax estimates

Your Expense Tracking Action Plan

This Week

Choose your primary tools (accounting software, receipt app)
Set up bank feed connections
Gather and enter last month’s expenses

This Month

Establish capture routine for new expenses
Organize digital receipt storage
Set up mileage tracking app
Create your category list

Ongoing

Daily: Capture receipts immediately
Weekly: Categorize and file
Monthly: Reconcile and review
Keep improving the system

Need help setting up your expense tracking system? At Profit Path Books, we help small business owners implement systems that make bookkeeping effortless. Book a consultation to discuss your needs.