The easiest way to track income and expenses when you are self-employed is to record every payment you receive and every business expense in one list, give each a category, and check your totals against your bank statement once a month. A spreadsheet is enough for most sole proprietors and freelancers.
What is the easiest way to track income and expenses when you are self-employed?
The easiest way is to record every payment you receive and every business expense in one list, give each one a category, and check your totals against your bank statement once a month. You can do that in a spreadsheet, a phone app, or accounting software. The right choice depends on how many transactions you have and what else you need the tool to do.
What should you track?
- Income. Every payment from a client or customer, with the date, the amount, and who paid you.
- Business expenses. Every cost of running your business, with the date, the amount, what you bought, and the category. Keep the receipt or statement that proves it. See which receipts to keep.
- Transfers. Money you move between your own accounts. Record it so your balances match, but do not count it as income or an expense.
Which method should you use?
| Method | Best for | Main drawback |
|---|---|---|
| Spreadsheet | Sole proprietors and freelancers with a modest number of transactions who want full control and low cost. | You enter or paste transactions yourself, and there is no automatic bank feed. |
| Phone app | People who want to snap receipts and log expenses on the go. | Apps differ a lot in reports and in how easily you can export your data. |
| Accounting software | Businesses that need invoicing, payroll, bank feeds, or reports for a lender. | A monthly fee and a learning curve. |
| Bookkeeper | Owners with many transactions, or who would rather hand off the work entirely. | The cost, and you still need to keep your receipts and records. |
If you are not sure, start with a spreadsheet. It costs little, it shows you how your numbers work, and you can move to software later. The spreadsheet versus QuickBooks guide covers that step.
What is a simple weekly and monthly routine?
- Weekly: Enter or paste the week's transactions and give each one a category. Save the receipts for anything you plan to deduct.
- Monthly: Compare your ending balance to your bank statement. Clear out anything marked "needs review." Look at your income, expenses, and profit for the month.
- Quarterly: Check your profit so far this year and compare it with your estimated tax payments (see below).
If you do not yet have a monthly routine, the monthly close-out workflow guide gives you a checklist you can copy.
Why does good tracking matter for taxes?
Three rules from the IRS show why. First, the IRS says individuals, including sole proprietors, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed. Knowing your profit as you go tells you whether that applies to you. Second, self-employment tax is 15.3 percent, made up of 12.4 percent for Social Security and 2.9 percent for Medicare, and you generally file Schedule SE if your net earnings from self-employment were $400 or more. Third, you need records to back up what you report, and the IRS says to keep them for 3 years in most cases, 6 years if you leave out income that is more than 25 percent of the gross income on your return, and indefinitely if you do not file a return. The 1099 freelance tax organization guide covers how to organize records for a freelance year.
What is the best way to keep personal and business tracking apart?
Use a separate bank account and card for business, and pay only business costs from them. If you already have a mix, the separate business and personal expenses guide shows how to sort it out.
Want the setup done for you? The Bookkeeping Rescue Kit is a bookkeeping spreadsheet for small business owners with five connected tabs, Schedule C categories, and a monthly close-out checklist. It comes in Excel and Google Sheets. $9.99, one-time purchase. No subscription.
Get the Kit →Frequently asked questions
Record each payment you receive with the date, the amount, and the client's name. A spreadsheet works well for this. Add a column for the invoice number if you send invoices, so you can match payments to what you billed.
Weekly is a good habit, and monthly is the minimum. The longer you wait, the more receipts you have to find and the more transactions you have to sort at once.
Record every business expense you plan to deduct, and keep a receipt, invoice, or statement for each one. Expenses you do not record cannot be backed up if you are asked to show them.
A spreadsheet gives you full control and costs little. An app is more convenient for snapping receipts on the go. Some people use both: an app to capture receipts and a spreadsheet for the monthly totals.
Not always. A sole proprietor with a modest number of transactions can track income, expenses, and profit in a spreadsheet. Accounting software helps once you need invoicing, payroll, or automatic bank feeds.
Sources
- IRS: How long should I keep records?
- IRS: Estimated taxes
- IRS: Self-employment tax (Social Security and Medicare taxes)