The Easiest Way to Track Your Freelance Receipts
This article is sponsored by TaxAct.
I’ve been a full-time freelancer since 2012, and it took me until this year to put together a good system for tracking my freelance receipts.
I’ve always kept my receipts. That was never the problem. I shoved papers into shoeboxes, archived emails into subfolders, the usual stuff.
I also used budgeting software programs to sort my receipts by category — or I tried to, anyway. Those programs can be pretty quirky; you’ll go to your favorite coffee shop (or copy shop, depending on the type of freelance work you do) and nine times out of ten the budgeting software will categorize your expense as “coffee” (or “copies”), and then the tenth time it’ll end up under “restaurants” or “shopping” or, more likely than not, “uncategorized.”
Which means that every year, come tax time, I’d spend hours trying to reconcile my receipts and my budgeting software before manually typing every business expense into a spreadsheet that I’d then send to my accountant.
I’d try to be helpful by subdividing my spreadsheet into broad categories like “travel” and “website,” along with detailed notes explaining that this plane flight was for a writers’ conference and this meal was with an editor. (I felt like I had to justify every expense to my CPA, to prove that it was really for business.) Then my CPA would take my spreadsheet and reorganize my expenses so they fit into my Schedule C: travel, deductible meals, legal and professional services, and so on.
This year, I got tired of spending hours organizing my business expenses before I did my taxes. I realized that although I had the basic tenets of business expense tracking down — save every receipt, good job! — I could do a lot better with my sorting and categorizing. Putting in a little extra work now would save me a lot of time and trouble come tax season.
If you’re also looking for an easier way to track your freelance receipts, here’s the best advice I can offer:
Keep your business expenses separate from your personal expenses.
It took four years of full-time freelancing for me to finally get a business credit card. I’d recommend you get yours after the first year. You don’t necessarily need a special business credit card (or business checking account) to keep personal/business expenses separate — most budgeting apps will let you sort expenses into “business” and “personal,” and if that fails you can always create your own spreadsheet — but having a separate card or account for business expenses has turned out to be very helpful. (Be aware that if you have credit cards linked to services like Amazon or Uber, you should probably link your business credit card as well so you don’t accidentally charge a business expense to your personal credit card.)
Keep all of your receipts in the same place.
Tracking receipts is way more difficult if you’re using multiple storage systems, so pick one and stick to it. Want to put paper receipts in a twelve-month expandable folder? Make sure you get a paper copy of every receipt, even if it means printing out the receipts that arrive via email. Similarly, if you want to use email subfolders to track receipts, you’ve got to make sure every receipt hits your inbox — even if it means taking a photo of a paper receipt and emailing it to yourself.
A lot of freelancers swear by Evernote or FreshBooks or Quicken, and there are plenty of apps designed to help you track both your business expenses and your receipts. Pick an app you like, and use it to help you track every transaction.
Turns out my system of justifying every business expense wasn’t necessarily a bad thing — but you shouldn’t do it just to prove to an accountant that you were spending money on your business. You should do it because you aren’t always going to remember why you made that Staples purchase or booked that flight. Taking notes on your purchases makes it a lot easier to sort them into IRS-friendly categories, which brings me to:
Know your categories.
This was my big knowledge gap. I’d give all of my receipts to a CPA and let someone else divide them into categories. This year I used TaxAct, and when I went through its Deduction Maximizer I kept track of the tax-deductible business expense categories it suggested: advertising, contract labor, office supplies, and so on. I realized that I could start sorting my freelance receipts into those categories right away, instead of waiting until tax time — which would save me a lot of time and effort.
Sort at the beginning, not the end.
As soon as I had my list of tax-deductible expense categories, I opened a new spreadsheet and began collecting and sorting all of this year’s business expenses. It was early enough in the year that this process only took me a few minutes — and when I was done I understood just how much time it would save.
Now, when I buy a meal or a plane ticket or pay for another month of Simplecast hosting, the receipt goes into my special email folder and the dollar amount gets sent to my budgeting software. At the end of the month, I open up my tax spreadsheet and enter the month’s business expenses by category. When tax time comes around next year, I won’t have to dig through boxes or try and figure out whether my budgeting software miscategorized something.
You don’t have to set up a separate tax spreadsheet if you have a system or an app you already prefer (it’s pretty easy to add your own tax categories to most budgeting or receipt-tracking programs, after all). Figure out what works for you, and then do it — don’t procrastinate! The easiest way to track your freelance receipts is to do it right the first time and do it right away. That way, you won’t spend hours trying to organize a year’s worth of receipts before you start next year’s taxes.
Support The Billfold