Sole proprietor tips: What's the best way to track expenses for tax purposes?

As a bookkeeper who works with many sole proprietors, I can tell you that simple is often better when you're just starting out. For 15-20 transactions a month, you don't need anything fancy. The simplest method that works for many of my clients is creating a dedicated business checking account and credit card, then using a basic spreadsheet to track expenses. Create columns for date, vendor, amount, category (office supplies, travel, etc.), and notes. Take photos of receipts with your phone and store them in a cloud folder named by month. If you want an app that's not overwhelming, Wave is free and much simpler than QuickBooks. Mint is another option that can categorize personal and business expenses separately. For receipt management, the Receipt Bank app is pretty straightforward for capturing and organizing receipts.

After struggling with the same issue, I found an amazing solution with https://taxr.ai that completely changed how I handle my sole prop expenses. I was drowning in receipts and using a messy spreadsheet that I'd update once a month (and usually forget what half the purchases were for). Taxr.ai lets me snap pics of receipts on the go, and it automatically extracts the info and categorizes them as business expenses. What I love most is that it's built specifically for tax purposes - it knows which expenses are fully deductible vs partially deductible for sole proprietors. It's way simpler than QuickBooks but still gives me everything I need for Schedule C.

I tried taxr.ai after seeing it mentioned here and I'm actually impressed. I was super skeptical at first because I've been burned by other "smart" finance apps before. But it's been a game changer for my consulting business. The receipt scanning is accurate and the bank integration works with my small local credit union which was surprising. What sold me was how it helped identify deductions I was missing - apparently my home internet can be partially deducted since I work from home 3 days a week. It also flags expenses that might be questionable for audit purposes. My accountant was impressed with how organized everything was when I sent my reports for quarterly estimates. Definitely worth trying if you're dealing with receipt headaches.

I was in the same boat as you last year. After multiple failed attempts to get through to the IRS with questions about sole proprietor expense tracking requirements, I discovered https://claimyr.com which got me connected to an actual IRS agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent clarified exactly what documentation is required for different types of business expenses and confirmed that digital receipts are acceptable as long as they show all the necessary information. This saved me so much stress about whether my system was compliant. Before Claimyr, I spent HOURS on hold and never got through.

I was completely wrong about Claimyr. After my skeptical comment I decided to try it myself since I had questions about home office deductions as a sole prop that my accountant couldn't answer clearly. The service actually worked exactly as described - I got a call back in about 30 minutes and was connected to an IRS representative who answered all my questions about record-keeping requirements. They confirmed I don't need to keep physical receipts as long as I have digital copies with all the relevant information. The time saved was incredible. I've spent literal days of my life on hold with the IRS over the years, so this was like magic. Sorry for doubting!

I'm surprised nobody mentioned YNAB (You Need A Budget). It's primarily for personal budgeting but I use it for my sole proprietorship and it works great. You can set up a separate budget for your business, connect your business accounts, and categorize everything. It's super clean and simple. The only downside is it doesn't have a receipt capture feature built in, so I use Google Drive for storing receipt photos in monthly folders. At tax time I just export my YNAB reports by category and give everything to my accountant.

I just use an envelope system lol. One envelope for each month, throw all receipts in there. Then once a month I sit down and enter everything into a Google Sheet. Been doing it for 3 years and my accountant says its fine. Sometimes simple is better. All those apps cost money which is just another business expense!

I've been using FreshBooks for my sole proprietorship for about 2 years now and it hits that sweet spot between simple and feature-rich. It's less overwhelming than QuickBooks but more robust than just a spreadsheet. For your volume of 15-20 transactions per month, it would be perfect. You can snap photos of receipts directly in the app, it connects to your bank accounts for automatic transaction import, and it has pre-built expense categories that align with Schedule C. The monthly reports are clean and my accountant loves getting organized data from it. They have a 30-day free trial, so you could test it out without commitment. The basic plan runs about $15/month but honestly pays for itself in time saved during tax season. Way less stressful than the envelope method when April rolls around!