Day 23 talked about tracking your spending. In particular, it focused on the kinds of things to keep track of. We provided a list of potential expenses you wanted to keep a record of.
Okay, so you have an idea what to track.
How do you track it? What’s the best way to record and organize the expense information for your delivery business?
The way that works best for you.
How book keeping works: Understanding expense categories.
For business accounting, the best practice is to keep track of how much money was spent on a category by category basis. For example, office expenses are one category, employment expenses are another (if you have employees).
When it comes to keeping records for your own purposes, you can choose whatever categories work for you. Some businesses like to track very specific details.
As a self employed person who hasn’t incorporated, you report your income and your expenses to the IRS on a form called Schedule C: Profit and Loss From Business. On that form, you tell how much you spent on each of several different categories.
To save yourself a lot of trouble at tax time, it just makes sense to keep track of what you spent on each of those categories.
Book keeping is simply figuring out what category an expense fits under, and organizing your records by those categories.
Your job is to identify what category an expense item fits in. And then you record the information in a way that you can tell how much you spent in each category. If you do that well, you can very easily provide the numbers needed to complete your Schedule C.
You can do that a number of ways.
There’s the old school way: Write it all down. You could keep a notebook, with pages for each category. You look at the money you spent, identify what category it fits into, and write the expense down on the page for that category. Write the date, who you paid, how much you paid, and what the expense was for. Keep a receipt.
It can be that simple.
You can do it on a spreadsheet. Spreadsheets these days have multiple tabs. Do the same thing: On the tablet for the appropriate expense category, enter the date, who you paid, how much you paid, and the purpose.
Or you can use a software program. There are programs where you can just record an expense, select the category, submit, and the program does the rest. You can then pull reports to see how your business is doing.
Which is best for you?
The one that’s best for you.
That’s not helpful, is it? What I mean is, you have to choose what works for you. You have to pick something that you can work with. And you have to decide what you want to invest in to make it work.
Writing everything down on different pages is maybe the simplest way to get started. Paper is cheap. That could work. Over time it can just take more time, especially when it’s time to add everything up for the end of the year.
If you’re comfortable with spreadsheets and know how to set up the formulas to add everything up, that could work for you. I’ve attached a couple of Excel Spreadsheets that I put together. One has sample information so you can see how it works, and the other is just blank. You can click to download the spreadsheet.
Software or apps
The best practice is to pick an app or a software program that will help you organize your information. I’ll mention two examples:
Stride is an app that will track your miles for you and give you the most basic record keeping capability. And I mean real basic. The beauty of it is, it’s free. But then again, you get what you pay for.
Okay, to be fair, I think you get more than what you pay for. It’s a nice simple app and it is designed to make it as easy as possible. It’s designed for gig workers, and it makes some decisions for you what categories some of your purchases would fit into. You can also use it to take pictures of your receipts, which is a nice feature.
That said, it is extremely limited. It won’t let you add expenses that aren’t in its immediate list of items. There’s not an option to add an item under “Other” that you could review at a later time.
How Stride works
You start off at a home screen, and at the bottom of the screen is a big plus button. Tap that to add income, expenses, or to start recording a drive.
If you tap on Add an expense, you’ll get a list of the types of expenses. What they do is present a list of expenses that might be typical for a gig worker, rather than just the IRS categories. That does make it more user friendly.
You select a category and then record the details.
Once you’ve entered your income and expenses, you ask Stride to email a report. The report will break down expenses by IRS category but won’t tell you which expenses fit in which category.
My thoughts on Stride
Personally, I’m not a fan. I like that it tries to make things simple. Unfortunately in making things simple, they didn’t provide flexibility for anything outside the options they set up. The information they provide for reports is very lacking. I think in a lot of ways a paper and pencil or speadsheet might be better for you.
Quickbooks Self Employed
Quickbooks is a book keeping program that is very popular used by a lot of businesses. I used their full business package, but they have a simpler and easier to use version called Quickbooks Self Employed.
You do have to pay for it. You can use my referral link and get it for $7 per month for the first 6 months, then it bumps up to $15 per month. Like Stride, it has a mileage tracking app, however it is a bit more powerful. You have the full program available either in app form or on a browser.
There’s still a lack of flexibility that I don’t like personally, but for someone just getting started that’s probably not going to be an issue for you.
One of the best things about Quickbooks Self Employed is that it has a very solid calculator to help you get an idea what to save for taxes.
I won’t go into as much detail on the program here. I wrote a review of the program that goes into more detail about how it works.
The categories that the IRS uses to track your expenses:
There are nineteen categories. They also let you record “other expenses” if an expense doesn’t fit one of those 19.
Whether you are using Quickbooks Self Employed, or using pen and paper or spreadsheet or another method of tracking, here’s pretty much how it works:
You choose which category fits your expense. If it doesn’t fit, put it in “Other.” Then you can always get help looking at those “other” expenses.
Here are the categories that the IRS uses on Schedule C, and some ideas of what would fit in those categories.
While gig workers don’t usually do any advertising, there are some things that can fit into this category. If you get business cards for any reason, that would fit here. If you print up materials to encourage customers to tip or leave a rating, that fits in this category.
Car and Truck expenses.
This is where you enter your mileage deduction (or add up ALL the actual expenses) and your parking and tolls. The Stride app doesn’t even have an option to track actual expenses, but I encourage you to track both the actual expenses AND mileage.
Commission and fees.
This is money you pay out as compensation for when someone helps you earn money. I get a small commission when someone buys off one of my Amazon links, and what Amazon pays me fits in this category.
Depending on how you report income from Uber Eats (and maybe some other apps) you may use this category. Some apps will report that they paid you more than what they deposited. They might say that they paid you $10 for a delivery when they actually gave you only $7. When they do that, they’re saying that they charged you a $3 commission.
If you report that you made $10, you can then claim the $3 under commission and fees. However, if you report only what they deposited as your income, you wouldn’t claim this expense.
This has to do with natural resources and wouldn’t really apply for us.
The loss of value of things your business owns.
When you have higher cost purchases, those aren’t usually considered expenses. That’s because you are getting something of value in return. However, if that item loses value over time, you can claim that loss of value.
You buy a car for $30,000. You get a car back that’s worth $30,000. So there’s no expense. However, in a year, you sell the car and only get $20,000, you lost $10,000 in value. That loss of value is an expense.
I just got an e-Bike to use for delivery. That’s going to lose value over time. I can claim that under depreciation.
Employee benefit programs.
I’m going to assume you don’t have employees.
Even though we are considered self employed, we can’t really claim ourselves as employees under this category. All that to say, you probably won’t have anything here.
This would be for business insurance other than health and auto insurance. If you bought a liability policy, it would go here.
If you have a car loan, you can claim the business percent of the interest portion of your payment here, even when claiming the mileage deduction for your car.
Generally gig workers aren’t going to have business loans. However, some have taken out the SBA pandemic relief loans, and any interest they have to pay on those loans would count here.
This would be for business property, not your home. I haven’t met anyone who bought an office building for their gig delivery business.
Legal and professional services.
The biggest examples are what you would pay professionals like lawyers, consultants, or accountants.
While we don’t usually have an actual office, we may have expenses related to day to day operation of your business. If you pay subscriptions for apps that help you run your business, that kind of thing would fit here.
Pension and profit sharing plans.
This is an employee related item. See my comments on Employee Benefits.
Rent or lease.
Ever thought of leasing one of those electric scooters for a downtown delivery? That would go here. So would a lease on your cell phone. If you lease a car and are not claiming the mileage deduction, your lease payments would go here.
Repairs and maintenance.
If you have business equipment that needs repairs or maintenance, those costs go here. If you use a bike for delivery, the repairs and maintenance would be recorded here. Fixing a cracked screen on your cell phone could be claimed (for the percent of what you use that phone for business).
This is the stuff you need to run your business. Delivery bags, cell phone holders, cleaning supplies for sanitizing your equipment, PPE for your deliveries, etc.
Taxes and licenses.
If you have to pay for a business license or pay business taxes, this is where you would record that expense..
Travel and meals.
If you have to travel out of town overnight for business, related expenses and the meals while traveling would work here. If there were a gig worker’s convention or you were invited to be on a driver’s council, those costs could be taken.
Say you took a friend out to talk about having them sign up under your referral link for Doordash. Because that meeting has the potential of increasing your earnings, that’s a business expense and you can claim half that cost.
You cannot claim your meals while out on delivery. That’s still considered a personal expense.
If you owned business property, you can claim the utilities here. This is not for your home utilities.
See my note on employee benefits.
If you have expenses that meet the IRS definition that they are reasonable, ordinary and necessary parts of running your business, but they do not fit any of the categories, you list them here. You will be required to describe the expenses.
Many people put the business portion of their cell service here. Memberships might also fit in this area such as if you got a AAA membership. For my website, the cost of operating the site goes in this category.
Set it but don’t forget it.
You don’t necessarily need help with the book keeping. You can keep track of everything, keep it organized in the best way that works for you.
The time will come though that you probably will need some help. It’s seriously worth paying someone who knows taxes to help you look over your records and see if you’re missing anything.
I’ve thrown this rule out there when it comes to spending money on your business: It should help you be more profitable or more efficient. A good tax person usually pays for themselves in how they help keep your tax bill down. Also think of the time you lose trying to do too much of this yourself – what could you earn during that time?
It’s worth it. Get a tax pro.
And hey, when you do that? You can claim that expense under Legal and Professional Services.