How to track expenses as a freelancer
Freelancers do not have an employer withholding tax or tracking costs for them. Everything is on you. The good news is that a simple weekly habit is enough to keep your records tax-ready.
Start with what you are tracking
You need three things for every freelance dollar: what it was, when it happened, and why it was for the business. Tracking income matters as much as expenses, because the tax you owe is based on profit.
- Income: every payment from clients, including payments reported on a 1099-NEC and those that are not.
- Expenses: software and subscriptions, equipment, supplies, advertising, professional fees, insurance, education, travel, a share of home and phone costs.
- Mileage: business trips by car, logged as you go.
- Tax set-aside: what you move to a separate savings account for taxes.
Common freelancer deductions people miss
- Software, apps and cloud storage used for client work
- A share of internet and cell phone service
- Business use of a home office
- Business mileage (not your regular commute)
- Professional dues, courses and books for your field
- Health insurance premiums for self-employed people (a deduction on your return, not a business expense)
- The deductible half of self-employment tax
A weekly 15-minute routine
- Import or sync the week of transactions from your business accounts.
- Categorize anything the app did not already sort.
- Photograph receipts for purchases over a small threshold, and for every travel or meal expense.
- Match client payments to the invoices you sent, and chase anything overdue.
- Move your tax set-aside from the deposits you received.
Use consistent categories
Pick categories that line up with the lines on Schedule C (advertising, office expense, supplies, travel, meals and so on) and use them every time. Consistency makes your year-end totals trustworthy and your quarterly estimates accurate.
Do not forget what is not a normal expense
Money you pay yourself, loan principal payments, and personal purchases are not business expenses. Large equipment may be depreciated or expensed under special rules. When in doubt, mark it and ask your tax preparer.
Common questions
Do I need to track expenses if I earn very little?
Yes. All net self-employment income is reportable, and good records show your true profit, which can be much lower than your deposits.
What if I lose a receipt?
A bank or card statement shows the payment, and you can add a note about the purpose. Recreate the record as soon as you notice, then photograph receipts going forward.
Sources and method
Figures and rules in this guide come from the IRS publications below. We check them against the current versions when we review an article. Examples use round numbers for illustration.
This article is general education. Ledger organizes information and prepares it for review. Estimates depend on the information you enter, so review tax information with a qualified professional.
Put it into practice
- Use Ledger to organize receipts and deductions.
- See Ledger as a finance app for freelancers and side-hustlers.
- Compare Ledger and FreshBooks.
- Read how Ledger protects your data.