Business expenses, also known as deductions, are ordinary and necessary costs required to run a business. Fixed expenses, like rent and insurance, remain relatively constant, while variable expenses, such as sales commissions, fuel for business vehicles, and shipping costs, can vary each month.
“Company owners must document these expenses properly because most tax regulatory authorities around the world allow businesses to deduct them if supported by documentary evidence,” advises Wahaj Siddiqui, Managing Director, Oblique Consult, a leading tax advisory firm in the UAE.
That being said, a business expense can be written off only if it is incurred with the intent to make a profit. While some costs are fully deductible, others might be partially deductible or spread out over different tax years.
Examples of deductible business expenses include:
- Advertising and marketing
- Bank fees and interest
- Business mileage
- Commissions
- Employee educational expenses
- Employee benefits
- Equipment maintenance and repair
- Furniture
- Home office (if it’s your primary place of business)
- Insurance
- Membership dues (for business-related activities)
- Legal fees
- Office supplies and equipment
- Payroll (for employees and contractors)
- Rent or office lease
- Mortgage payments
- Software
- Some business travel costs
- Utilities
Conversely, non-deductible business expenses include:
- Demolition costs or losses
- Educational expenses for business requirements
- Government fines and penalties
- Illegal activities
- Lobbying expenses
- Political contributions
It’s important to note that capital expenditures are generally written off over time through depreciation.
Though it’s easy to lose track of them amidst a busy schedule, monitoring business expenses is fundamental for any company. This article covers five practical steps to help you manage your business expenses efficiently.
5 Tips to Keep Track of Business Expenses Effectively
1. Open a business bank account.
Separating business and personal expenses simplifies bookkeeping and tax filing. Open a dedicated business bank account with features like online access and integration with accounting software. A business credit or corporate card further ensures a clear division between personal and business finances. Furthermore, using your business card responsibly can help build a strong business credit score, making your company more attractive to investors and offering benefits like higher credit limits and lower interest rates. With a separate account and card, managing finances becomes easier, tax deductions are organized, and you can access rewards like cashbacks or travel perks.
2. Use business expense tracking software.
To efficiently track business expenses, select accounting software that not only automates your accounting function, it even gives you a single window view of your business records. Many platforms offer free options with reporting tools that provide year-over-year expense comparisons. During setup, choose between cash accounting, which records transactions when payments are received, or accrual accounting, which logs bills and payments as they occur.
Integrating expense tracking with your accounting software avoids manual data entry, reduces errors, and saves time. Some corporate cards include spending management features like receipt matching, automatic categorization, custom spending controls, and seamless integration with accounting systems for accurate, real-time reporting.
3. Connect your bank account to the software.
After you’ve implemented business expense tracking software, the next logical step is to connect it with all your business accounts. This integration will allow automatic downloading and categorization of transactions, simplifying bank statement reconciliation. You can also import daily transactions and download statements directly into your accounting system, without having to log into your bank account separately.
With automated imports, you’ll also have an up-to-date record of your income and expenses. Besides protecting your business data, the synchronization will also protect your business data and give you better financial insight.
4. Set up purchasing processes.
To streamline operations further, it’s important to establish processes like basic bookkeeping, invoicing, accounts receivable, accounts payable, tax compliance, payroll, and spend management. If you’ve already implemented expense tracking software, automating these tasks shouldn’t be a problem.
A clear, accessible spending policy should also be in place to guide employees, particularly those who handle a high volume of transactions. It reduces the risk of overspending and simplifies both bookkeeping and reimbursement. You can tailor the policy to your company’s specific needs, but ensure it includes key components applicable to all industries.
5. File your receipts.
Lastly, keep copies of business receipts (even those for fuel mileage, business travel, accommodation, and meals) to track expenses effectively. These receipts will come in handy during tax season when proof is needed for deductions and write-offs. If you don’t have expense tracking software, consider using mobile apps to create digital copies, which can minimize physical storage needs. Some apps also allow you to attach receipts to invoices and automatically generate expense reports for reimbursable costs.
Promptly file receipts to ensure accurate tracking, as some tax regulatory authorities mandate keeping paper receipts and documents, like bank statements, for at least three years. Store and organize paper receipts in folders. Write down the purpose of each purchase and label folders by date and category of expense incurred.