Track your expenses smart.
“What do you mean you give your accountant a shoebox of receipts?” I asked my art director friend. “I give him a shoebox of receipts at the end of the year! He doesn’t like it, but I’m just not good at that stuff,” she responded. “Your accountant must hate you”, I said. Up until that moment, I thought it was a myth or an exaggeration whenever I heard accountants complain about clients turning up at the end of the year with this infamous box. But there I was, having a glass of wine with a friend and thinking, “People actually do this!” And mental note, never become an accountant.
Like most things associated to finances, tracking expenses is annoying. The good news is that if you follow some system, a simple one, doing so can actually alleviate some pressure off of you and make your accountant not dread your end-of-the-year visit. The system I’ve detailed below I’ve found works well for the individual freelancer, for the one-man shops that a lot of us are.
- Keep all of your receipts in the same place. For electronic receipts, keep a folder on your desktop and label it ‘receipts’. You can screenshot your Uber receipts for example and move them into that folder. For paper receipts, I keep most of them in my wallet up until I do my bi-monthly ‘clean out of receipts.’ Once I take them out of my wallet, I transfer them into my ‘envelope system’.
- My unpatented envelope system: at the beginning of each year, I take 7-10 envelopes (or as many as needed) and label each of them with an expense that I incur throughout the year. For example, I take an envelope and label it, “Transportation 2015” and I take every taxi receipt that finds it’s way into my wallet and I put it in that envelope. *Note: I only include receipts for taxis I take for work-related purposes.
- I then rubber band all of my expense envelopes together so they are secure in one place. Categorized expense envelopes are better than a chaotic shoebox.
- If you want to earn extra points with your accountant (and save yourself some money!) you can start a Google or Excel sheet and create a list of all your expenses. Then, go through both your electronic and paper receipts and type in the amounts into the appropriate categories. Because this will be especially time consuming if you leave it to the end of the year, I recommend doing this on a monthly basis.