Even if you’re not formally incorporated as a single-member LLC or S-corp, you’re permitted to deduct a raft of business expenses when calculating your net income (profit) for income tax purposes. The IRS has an extensive primer on the various types of deductible business expenses here — check it out, if you haven’t already.
There’s a catch, of course. You must keep thorough records of all deductible business expenses incurred throughout the tax year. “Seems about right” isn’t good enough for the IRS. If you can’t prove you incurred a particular business expense, you can’t deduct it.
Ditch the Shoebox
Many Indies throw business-related receipts in a shoebox, hoping against hope they’ll be able to make sense of them come tax time.
Don’t be like them. There’s a better way to track and manage your business expenses.
Start by erecting a wall between your business and personal expenses. This is the cornerstone of any independent professional’s accounting system, and an essential defense against both tax trouble and personal liability for business obligations.
Next, get an app (or two) to manage your business outlays — and ditch once and for all that chaotic, overflowing shoebox you call a receipt organizer.
Receipt Management Apps
Indies love these well-regarded receipt management apps. All are free to try, though Indies with extensive or complicated expenses may want to upgrade to a paid plan.
Receipts by Wave
Receipts by Wave is a mobile receipt scanning app that lets you snap and scan physical payment records on the go. The app presents each scanned receipt for your approval and syncs with the cloud as soon as you give the okay (or, in offline mode, as soon as you’re connected to the Internet again). There’s no need to print and scan emailed receipts — just forward them to firstname.lastname@example.org and let the app work its magic. You can categorize scanned receipts as you see fit; at minimum, you’ll want to separate business and personal expenses.
Receipts by Wave comes with unlimited receipt-scanning privileges and integrates seamlessly with your Wave accounting app. Both apps are free; Wave only charges for online payment processing and payroll, which many Indies don’t need.
Shoeboxed is another lightweight, mobile-friendly receipt scanning app that boasts “IRS accepted receipt images” (basically, high-quality files) and a fully searchable database. If you lack a suitable smartphone camera, you can mail your receipts to Shoeboxed for processing; emailed receipts always get the “forward” treatment. Shoeboxed uses more than a dozen standard expense categories and extracts vendor names, obviating the need to squint at an endless stream of digital images come tax time. You can create your own categories, too.
Shoeboxed doesn’t have an onsite accounting platform, but it integrates with top digital bookkeeping apps like QuickBooks and Wave. Shoeboxed’s Lite plan costs $15 per month after the 30-day free trial period; at that price, you might opt for the mail-in option and save yourself some time.
Expensify has a handy transaction importing feature that lets you pull expense records directly from your business bank or credit card accounts. Don’t worry: it has receipt scanning capabilities, which you’ll need should the IRS come calling. Expensify integrates with many popular accounting apps. It’s free for individual users; should you ever scale your Indy outfit, you can upgrade to a paid plan at $5 per user, per month.
Mileage Tracking Apps
Vehicle mileage is a special case. If you use your personal vehicle for professional purposes, you can deduct business mileage at the current standard mileage rate ($0.545 per mile in 2018).
Though it’s not rocket science, accurately tracking your business drives is time-consuming, not to mention difficult for the temporarily forgetful. These apps take (most of) the human element out of the process.
MileIQ is a lightweight mobile app that automatically detects and records drives, using GPS to log distance traveled. You can classify trips as personal or business-related in real time or in bulk. The app’s standard reporting feature shows total miles driven, total reimbursable mileage expense (at the current-year rate), and trip purpose. If that’s not enough, you can add further detail — for instance, if you regularly make different types of business-related drives.
One caution: MileIQ’s free plan tops out at 40 drives per month, so you’ll want to turn drive detection off until it’s time to travel for business. Otherwise, you’ll probably blow through the limit before the month ends. You can always upgrade to a paid plan: $4.99 (paid annually) or $5.99 (paid monthly) per month.
Like MileIQ, Everlance automatically detects drives and presents them for your review when you’re ready. The biggest difference: Everlance also has a receipt scanning feature, making it a one-stop shop for Indies looking to track business drives and non-mileage expenses in the same place. Everlance’s bank and card integration echoes Expensify’s.
Everlance’s free version is stingier than MileIQ’s: 30 free drives per month, though receipt scanning is always free and you can manually track additional drives (if you remember, which is tougher than it sounds). If you drive for business more often, consider upgrading to the Premium plan at $60 per year.
TripLog’s free version doesn’t have automatic drive detection, but its manual logging capabilities are unlimited and it boasts some useful add-ons, like toll, parking, and fuel economy calculators. Upgrade to the Basic plan at $2 per month for automatic drive detection and tax-compliant reporting.
More Where These Came From
Not sure any of the apps listed above meet your needs? Good news: dozens of receipt- and mileage-tracking apps are out there, waiting to be discovered. We recommend signing up for a few free trials and seeing which best fits your needs. They’re all better than the shoebox.