Understanding & Keeping Track Of Business Expenses As An Independent Contractor

If you work as an independent contractor, you need to be able to keep track of your business expenses. Keeping track of your business expenses will help you when you do your taxes and can save you money on your taxes. Your business expenses are deducted from your business income and thus bring down your taxable income.

Keep Your Personal and Business Expenses Separate

The first and most important thing you can do as a small business owner is to separate your personal and business expenses. You can help keep your personal and business expenses separate by paying yourself a salary every week out of your independent contractor earnings and moving that money to a separate account.

Keep Track of the Cost of Goods Sold

The next type of expense you need to keep track of is the cost of goods sold. This refers to the money that you spent on accruing your inventory and taking care of it. 

Keep Track of Capital Expenses

Next up are capital expenses, which are items where you deduct the value of them over a period of years not all at once. With capital expenses, you have to keep track of when you purchased the item, and then you have to keep track of how its value declined over time. For example, generally things such as equipment, real estate, and furniture are things that are capital expenses where you will deduct the value over time and not all at once.

Keep Track of Business Expenses

You need to make sure you keep track of all business expenses. When in doubt, track the expense and discuss it later with your accountant. You can even make different columns of business expenses in your accounting software to make it easier to track various expenses.

For example, any office supplies you purchase are business expenses. Business expenses also include logistical things, such as rent on the space where you work. Or you can deduct your home office expenses. 

Keep Track of Mileage

If you use your vehicle at all for business purposes, you are going to want to get either a pen and paper or a software program that you can use to log the mileage you drive for business purposes. You can deduct that mileage, as long as you keep track of it.

If you have more questions about the expenses that you should be keeping track of, talk with an accountant. An accountant can help you set up systems for keeping track of qualified business expenses throughout the year.