Save More on Taxes: Easy Tips for Categorizing Your Business Expenses
- canfield246
- Mar 17
- 4 min read
As a business owner, you understand the importance of tracking every dollar you spend.
But let’s be honest—knowing where to start can be tough.
Maybe your expenses are scattered all over the place, or you’re just not sure how to track them the right way.
Don’t worry, we’ve got you covered.
In this article, I’ll break down the steps to easily categorize your business expenses so you can maximize your tax deductions—without the confusion.
Let’s dive in!
Why Categorizing Expenses Matters
You might be wondering why categorizing your expenses is such a big deal.
Well, it’s pretty simple: when your expenses are properly categorized, it makes filing your taxes a whole lot easier.
Plus, you’ll know exactly where your money is going, which can help you make smarter business decisions.
On top of that, proper categorization ensures you don’t miss out on valuable tax deductions that can lower your taxable income.
So, it’s really about keeping things organized and maximizing your savings.
Step 1: Identify the Different Types of Expenses
The first thing you’ll need to do is figure out what kind of expenses you’re dealing with.
Don’t worry—it’s not as complicated as it sounds.
Here are some common categories:
Operating Expenses: These are your day-to-day business costs like rent, utilities, office supplies, and software subscriptions.
Employee Costs: This includes wages, benefits, and any other expenses related to employees.
Marketing & Advertising: Any costs related to promoting your business, whether it’s online ads, social media, or printed materials.
Travel & Meals: If you travel for work or meet clients over meals, these can be deductible—just keep track of them!
Equipment & Supplies: Any materials, tools, or equipment you buy for your business.
Professional Services: Payments to accountants, consultants, lawyers, or other pros you hire for your business.Once you have these categories in mind, you’ll have a better idea of where your money is going and how to track it.
Step 2: Choose a System for Tracking Your Expenses
Now that you know what you’re tracking, it’s time to set up a system.
You can go old school and use a notebook or spreadsheet, but most businesses find it much easier to use accounting software.
There are plenty of options out there, like QuickBooks, that can pull in the transactions from your bank, making it easier to just categorize each transaction to the right account.
If you’re using spreadsheets, just create separate columns for each category and input your expenses as they come in.
The key here is consistency—make it a habit to update your records regularly, and it’ll be way easier come tax time.
Step 3: Keep Your Receipts and Documentation
This is where it gets real: receipts. Keep them all.
Whether they’re physical receipts or digital, make sure you’re hanging on to every piece of documentation for your business expenses.
You’ll need these when it’s time to file taxes, and they also serve as proof in case the IRS comes knocking.
For digital purchases, save those email receipts or screenshots.
You don’t have to keep every single piece of paper, but anything related to business spending should be saved and organized.
You can even take pictures of receipts with your phone to store them in an app for easy access.
Step 4: Know What’s Deductible and What’s Not
Now, this is where things can get a little tricky.
Not every expense is deductible, and the IRS has rules about what qualifies.
For example, personal expenses aren’t deductible, so if you’re using your phone for both business and personal reasons, you can only deduct the portion that applies to your business.
Same goes for your car—keep a log of business miles if you’re going to deduct those travel expenses.
The good news is, most of your business-related expenses—like the ones you’re categorizing—are likely to qualify, but just be mindful of the details.
If you’re unsure, it’s always a good idea to check with an accountant or tax professional.
Step 5: Regularly Review and Update Your Categories
As your business grows, your expenses might change.
Maybe you’ll add new services or products, or maybe you’ll hire employees or rent a bigger office space.
It’s important to regularly review your categories and make sure they still make sense.
If your business evolves, adjust your categories to reflect those changes.
The goal is to keep your books as accurate as possible, so don’t be afraid to make tweaks along the way.
Step 6: Don’t Forget About Special Deductions
Beyond your regular expenses, there are also special deductions you can take advantage of.
For instance, if you work from home, you may be able to deduct part of your rent or mortgage under the “home office deduction.”
There are also deductions for business mileage, equipment depreciation, and even your phone and internet bills if they’re used for business purposes.
Keep an eye out for these opportunities to save more money, but make sure you’re keeping accurate records to back up your claims.
Stay Organized and Take Control
By now, you should feel a lot more confident about categorizing your business expenses for tax deductions.
It might seem overwhelming at first, but once you get into a routine, it’ll feel like second nature.
Remember, the key is staying organized, tracking your expenses consistently, and reviewing everything regularly.
Not only will this save you time and stress when tax season rolls around, but it’ll also help you save money.
If all of this sounds like too much to handle, we get it—managing your expenses and taxes can be time-consuming.
We'll do it for you.
Book a free consultation today, and we’ll take care of categorizing your expenses and maximizing your tax deductions.
You’ll have more time to focus on your business, and we’ll handle the rest.
Click here to get in touch!
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