How to Track Business Expenses

To track business expenses, keep a document for every business cost that shows who you paid, how much, how you paid and when. Record each expense in one place with a category that matches the lines on Schedule C, and run business money through its own account so personal spending doesn’t get mixed in. The IRS lets you choose any recordkeeping system that clearly shows your income and expenses (IRS), so a spreadsheet or paper ledger can work if you keep it current. Most records need to be kept for at least 3 years after you file.

What records the IRS expects

Every expense you deduct needs a supporting document. According to the IRS, these documents should identify the payee, the amount paid, proof of payment and the date the expense was incurred. Acceptable documents include canceled checks or other proof of payment or electronic funds transfer, cash register receipts, account statements, credit card receipts and statements, and invoices. You may need more than one document to support a single expense (IRS). A credit card statement shows the store and the amount, for example, while the receipt shows what you bought.

The same page lists the records to keep for other parts of the business:

• For income, keep documents that show the amounts and sources of your gross receipts, such as deposit records, receipt books, invoices and Forms 1099-MISC.
• For assets such as equipment, furniture and vehicles, record when and how you acquired each one, what it cost, improvements, depreciation and section 179 deductions you took, how you used it, and when and how you disposed of it.
• Travel, gifts and car use need extra records, covered below.

Publication 583 explains why this matters: supporting documents back up the entries in your books and on your tax return, so keep them in an orderly fashion and in a safe place (IRS Pub. 583).

How long to keep your records

The general rule is to keep records that support income, deductions or credits on a return until the period of limitations for that return runs out (IRS). For most people that’s 3 years, but the IRS lists longer periods for some situations:

Your situation	Keep the records for
None of the cases below apply	3 years
You file a claim for a credit or refund after filing	3 years from filing or 2 years from paying the tax, whichever is later
You left out income that’s more than 25% of the gross income on your return	6 years
You claim a loss from worthless securities or a bad debt deduction	7 years
You have employees (employment tax records)	At least 4 years after the tax is due or paid, whichever is later
You don’t file a return, or file a fraudulent one	Indefinitely
Property such as equipment or a vehicle	Until the limitations period ends for the year you dispose of it

Source: IRS.

Keep business and personal money separate

Publication 583 says you should keep your business account separate from your personal checking account and use the business account for business purposes only. It also recommends making all payments by check to document business expenses, and writing a check to yourself when you take money out of the business for personal use (IRS Pub. 583). The SBA adds that a separate business account keeps business funds apart from personal ones and lets customers pay the business instead of you directly (SBA).

A separate account also makes the records easier to keep. Every transaction on the business statement is either income or a business expense, and you aren’t sorting groceries out of supply runs at tax time. If you’re deciding whether to form an LLC as well, see LLC vs. sole proprietorship.

A simple way to track expenses

Publication 583 describes two bookkeeping systems. A single-entry system is built around the income statement (profit or loss) and is practical for a small business that’s just starting. A double-entry system records every transaction as a debit in one account and a credit in another, which builds in a check for errors (IRS Pub. 583). For most side hustles, single entry is enough: one running list of money in and money out.

A workable routine looks like this:

1. Log each expense when it happens. Write down the date, who you paid, the amount, how you paid and the category.
2. Keep the receipt with it. Paper receipts can go in a folder by month. Publication 583 allows electronic storage systems, including electronic imaging, as long as they give a complete and accurate record the IRS can access (same source).
3. Write a note for cash with no receipt. If you can’t get a receipt for a cash payment, Publication 583 says to make an adequate explanation in your records (same source).
4. Check the log against your statements once a month. Anything on the business account that isn’t in your log is either a missing entry or a personal charge that needs fixing.
5. Total each category at the end of the year. Those totals are what you’ll use on your return.

Use categories that match Schedule C

If you’re a sole proprietor, you report business income and expenses on Schedule C (Form 1040) (IRS Pub. 334). Using its expense lines as your categories means your year-end totals drop straight onto the form. These are the Part II lines on the 2025 Schedule C, the version filed in 2026 (IRS):

Schedule C line	Category
8	Advertising
9	Car and truck expenses
10	Commissions and fees
11	Contract labor
13	Depreciation and section 179 expense
15	Insurance (other than health)
16a, 16b	Interest (mortgage and other)
17	Legal and professional services
18	Office expense
20a, 20b	Rent or lease (vehicles and equipment, other property)
21	Repairs and maintenance
22	Supplies
23	Taxes and licenses
24a	Travel
24b	Deductible meals
25	Utilities
26	Wages
27b	Other expenses (listed in Part V)
30	Business use of your home

You won’t use most of these. A freelancer might only need advertising, office expense, supplies, and legal and professional services. Anything that doesn’t fit a line goes under other expenses, which you itemize in Part V. Keep meals in their own category: in most cases you can deduct only 50% of business meal costs (same source). To see what belongs in each category, read what business expenses are deductible.

Extra records for car, travel and gifts

Car, travel and gift expenses have stricter proof rules. If you deduct them, the IRS says you must be able to substantiate them (IRS). For a car used in the business, Publication 463 says to record the mileage for each business use, the total miles for the year, the date and your destination, along with the business purpose. You should record these at or near the time of the trip. A log kept weekly that accounts for that week’s use counts as a timely record (IRS Pub. 463). The same publication asks you to keep records of business car use for each year of its recovery period.

A note on your phone, a small notebook in the glove box or a simple mileage spreadsheet all work, as long as you fill it in as you go.

Putting your records to use

Besides supporting your deductions, expense records show your real profit (see gross vs. net profit), help you set aside the right amount for quarterly estimated taxes, and make it simpler to report side hustle income at filing time. If you have employees, inventory or assets you’re depreciating, a tax professional can help you set up records that fit.