Guide

Business expenses

A business expense is a cost incurred to run the business, supported by a record that shows what it bought and why. Almost everything difficult about them is in that second half. The rules for what qualifies are broad and fairly stable; the reason people lose money is that the supporting record was never made, or was made so late that the reason for the spend had already been forgotten.

What makes a cost a business expense

The US federal test, as IRS Publication 583 puts it, is that the expense is ordinary — common and accepted in your field of business — and necessary, meaning helpful and appropriate for it. Necessary does not mean indispensable. Other jurisdictions phrase it differently and land in a similar place: the cost has to be for the business rather than for you.

That test is broad enough that arguing about it is rarely where the money is. The two places spending actually fails are apportionment — a cost that is partly personal, claimed in full — and substantiation, where the expense was genuine and there is nothing left to show for it. This site is about the second problem, because it is the one a record-keeping habit fixes.

The record is the deduction

An expense you cannot support is, in practical terms, an expense you did not have. Publication 583 lists what counts as a supporting document — cancelled cheques, account statements, credit card sales slips, invoices, petty cash slips — and your spreadsheet or app is a summary of those, not a replacement for them.

The corollary is the one worth internalising: a card statement proves that money moved, not what it bought. For most deductible spending, what it bought is the thing that decides the outcome, so statements are a cross-check and receipts are the record. Keeping only statements produces books that look complete right up until someone asks a question about one line.

Four fields, on the day

Date, merchant, amount, and the reason for the spend. Those four make a record findable and defensible. The fourth is the one people skip and the only one that gets more expensive by the hour — a £42 charge at a hardware shop is meaningless eight months later, and six words written at the till would have solved it permanently.

Everything else in expense tracking is elaboration on this. Categories, jobs, tax splits and billable flags are all useful, and all secondary. If your system captures the four fields the same day, reliably, it is a good system regardless of whether it is an app, a spreadsheet or a notebook.

Pick a category set and leave it alone

Categories exist to answer questions later, so build the smallest set that answers yours, ideally matching the expense lines on the form you already file. Three to six is a sensible start. Review once a year, not continuously, because mid-year changes split your own totals.

The failure mode is over-specification. Fourteen categories feel thorough on setup day and become a decision repeated at every single receipt, which is exactly the friction that stops the habit. The categories page below works through a full working list and the two tests for whether any given category earns its place.

Separate business from personal at the source

Spend business money from a business account. This one change removes the largest recurring task in small-business admin — working out, months later, which of forty charges were business — and it matters more once there is an LLC or a company in the way, because the separation is then part of what the entity is for.

Where a cost is genuinely mixed, record the business share and write down the basis you used: hours, mileage, floor area, a call log. The method is what you can explain later, and applying the same method every year is defensible in a way that a fresh rationale each April is not.

Reconcile monthly, not annually

Once a month, work down the business account statement and match each line to a record. Two useful things fall out: spending you never recorded, and records with no receipt behind them. Both cost minutes to fix in the month they happened and hours to fix in April, when the context is gone.

This is also the routine that catches business costs you paid personally and never reimbursed — the most commonly forfeited deduction in a small business, and one that no software will find for you because nothing in the business's own data knows the spend happened.

Where to go from here

The pages below split this cluster up by the actual question. Categories if you are deciding how to organise; the spreadsheet if you want a working template and no software; travel if a trip is coming; LLC if you have just formed one; expense reports if you need to produce a document for somebody else.

Two adjacent tracks are worth knowing about. Matching card statements to receipts covers the monthly reconciliation routine in full, including what to do about lines with no receipt at all. And the tax-substantiation pages — IRS receipt requirements, how long to keep receipts, and what can be claimed without them — cover the rules that decide how long this all has to survive.

Scope and honesty note

US federal specifics on this page come from IRS Publication 583 and were checked on 16 August 2026. This is not tax advice, rules differ by country and by circumstance, and anything that turns on your own structure is a question for an accountant. Where this site cannot verify a rule against a primary source, it routes you to a professional rather than guessing.

We also make a receipt scanner, which is why this cluster exists. That is stated plainly rather than buried: the app photographs a receipt and turns it into a searchable record, entering and organising are free, and export requires Pro. The pages here are written to be useful whether or not you ever install it, which includes telling you where a free spreadsheet is the better answer.

Questions

Common questions

What counts as a business expense?

A cost incurred to run the business. The US federal framing in Publication 583 is that it must be ordinary — common and accepted in your field — and necessary, meaning helpful and appropriate, which is not the same as indispensable. Whether a specific cost qualifies for you is a question for an accountant.

What records do I need for business expenses?

The receipt or invoice showing what was bought, plus your own note of the business reason. Publication 583 treats cancelled cheques, account statements, credit card sales slips, invoices and petty cash slips as supporting documents. Your spreadsheet or app summarises those; it does not replace them.

Is a bank statement enough to prove a business expense?

Usually not on its own. A statement shows a payment happened but not what it bought, and what it bought is generally what decides whether the cost qualifies. Keep the receipts and use the statement as the monthly cross-check.

How do I start tracking business expenses?

Open a dedicated business account, pick three to six categories, capture four fields on the day of every spend — date, merchant, amount, reason — and reconcile against the statement once a month. The tool matters far less than the same-day habit.

What is the best way to track expenses for a small business?

Whatever you will keep doing. A free spreadsheet is genuinely sufficient below roughly thirty to fifty receipts a month; above that, manual typing is usually what stops the habit and a scanner app earns its place. Both are covered in the pages linked from here.

Do I need software to track business expenses?

No. A spreadsheet plus a folder of named receipt images is a complete system, and there is a free template on this site. Software helps when transcription volume has become the bottleneck, or when you need images and records held together automatically.