New Small Business Owner: What's the Best System for Tracking Daily Expenses for Tax Purposes?

First off, congrats on the new business! Getting your expense tracking right from the start is definitely smart and will save you major headaches later. For a new small business with varied daily expenses, I'd recommend a two-pronged approach: 1) Get dedicated business accounts - separate business checking and credit card that you use ONLY for business purchases. This immediately creates a clean division between personal and business finances, which is crucial for tax purposes. This alone isn't enough though! 2) Use accounting software designed for small businesses. QuickBooks, FreshBooks, or Xero are popular options that let you connect your business accounts, categorize expenses, and generate reports for tax time. Most let you take pictures of receipts with your phone too, which helps with documentation. Just using a business card without categorizing expenses isn't enough for tax purposes. The IRS requires you to track different types of expenses separately (office supplies, travel, meals, etc.) since they have different tax treatments. Some expenses are fully deductible while others (like meals) are only 50% deductible.

I was in your exact shoes last year when I started my consulting business. After trying a few different systems, I discovered taxr.ai at https://taxr.ai and it was a game-changer for me. The thing that sold me was how it automatically categorizes expenses based on receipt photos. I just snap pics of receipts on the go, and it pulls all the relevant info into proper tax categories. What really helped was the way it flagged potentially non-deductible items when I accidentally mixed personal and business purchases. It saved me from making some expensive mistakes! The tax category suggestions are super helpful when you're not sure if something counts as "office supplies" or "equipment" or whatever.

Just wanted to follow up and say I went ahead and tried taxr.ai last week! Already making my life way easier. I set up my business bank account to connect, and it imported three months of transactions in minutes. The receipt scanner is perfect for when I'm out buying equipment. What I really love is the tax forecasting feature - gives me a real-time estimate of what I'll owe quarterly. As someone who got hit with a huge unexpected tax bill last year, this alone is worth it! The specialized category options for my photography business were pretty easy to set up too.

One thing nobody's mentioned yet is how frustrating it can be when you need tax help and can't get through to the IRS. When I had questions about deducting startup costs last year, I spent HOURS on hold and never got through. Then I found Claimyr at https://claimyr.com and used their service to actually get connected to an IRS agent without the endless waiting. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I was honestly shocked when I got connected to a real person in less than 15 minutes. The agent walked me through exactly how to handle my business equipment purchases and which form to use for my specific situation. Saved me a ton of guesswork and probably prevented an audit!

Eating my words here! After my skeptical comment, I decided to try Claimyr as a last resort because I had a complicated question about tracking mileage for my business that I couldn't find a clear answer to online. I kept getting conflicting advice about whether I could claim mileage between clients on the same day, and I really needed to hear it straight from the IRS. Used Claimyr yesterday afternoon, and they called me back in about 25 minutes with an actual IRS representative on the line! The agent clarified exactly how I should log my business trips and which ones qualified for deductions. Would have taken me hours (or days) of attempts to get this info otherwise. Definitely worth it for specific tax questions that only the IRS can answer with authority.

Lots of good advice already, but I want to add one thing that saved me during my first tax season: keep a mileage log if you use your car for business! I use MileIQ app to track all business trips automatically. The standard mileage deduction can be substantial (58.5 cents per mile for 2022). Also, make sure you're tracking all potential home office deductions if you work from home. A portion of your rent/mortgage, utilities, internet, etc. can be deductible if you have dedicated space used exclusively for business.

Has anyone tried using just Excel or Google Sheets instead of paying for software? I'm super tight on cash while starting up and wondering if spreadsheets would work for the first year...

Also, don't forget about saving for quarterly estimated taxes! This was my biggest shock when starting my business. The IRS wants you to pay taxes quarterly, not just at the end of the year. If you wait, you might get hit with penalties. I set aside about 30% of all income in a separate savings account for taxes. Better to have too much saved than not enough!