How do I track business expenses?

The IRS requires businesses to maintain records that are sufficient to substantiate income and deductions. Without receipts and transaction records, you cannot legally claim deductions — even if the expenses are legitimate. IRS Publication 463 (Travel, Gift, and Car Expenses) and Publication 535 (Business Expenses) are the primary references for what qualifies and how to document it.

Step 1: Use a dedicated business account

Every business expense should flow through a dedicated business bank account or business credit card. When personal and business transactions are mixed, you can't reliably identify deductible expenses without reconstructing records manually — a slow, error-prone process. A separate account also makes monthly reconciliation straightforward.

Step 2: Categorize expenses consistently

Assign every expense to a category in your chart of accounts as you record it. Common small-business expense categories: cost of goods sold (COGS), rent/lease, utilities, payroll, advertising and marketing, insurance, professional fees, travel, meals (generally 50% deductible — see IRS Publication 463), office supplies, equipment, and vehicle use. Consistent categorization is what lets your profit and loss statement reflect reality and surfaces opportunities like Section 179 deductions for equipment.

Step 3: Keep receipts and supporting documentation

• The IRS requires receipts or other documentary evidence for most business expenses — especially those over $75 and all travel, meal, and entertainment costs.
• Store digital copies of receipts immediately — most bookkeeping software lets you photograph and attach receipts to transactions.
• For vehicle expenses, maintain a mileage log with the date, destination, business purpose, and miles driven for each trip — the IRS requires contemporaneous records.
• Keep records for at least 3 years from the tax return filing date (longer for employment tax records — 4 years).

Step 4: Reconcile monthly

At the end of each month, compare your recorded transactions against your bank and credit card statements line by line. This catches missing entries, duplicates, and bank errors before they multiply. Monthly reconciliation is the most important single bookkeeping habit for small businesses — see the full bookkeeping workflow for context.

Step 5: Use records for tax deductions and loan applications

Well-categorized expense records flow directly into your business tax deductions at filing time and make your P&L credible for lenders. Most business lenders require 2 years of tax returns and/or financial statements. Messy books are one of the most common reasons loan applications are delayed or declined. If you need working capital while you're growing, one application to ClearValue Lending routes to the funding partners best matched to it — general education only; consult a CPA for tax and deduction specifics.