Using FreshBooks to Triumph at Tax Time

Tax time doesn’t have to grind you up and spit you out. This year, use FreshBooks to triumph at tax time.


Burning the midnight oil trying to make sense of the dollars and cents? This year can be different: Tax time doesn’t have to grind you up and spit you out. Instead, use FreshBooks to triumph at tax time.

Here’s a handy guide on how to use FreshBooks in preparation for tax filing season.

Step 1: Track Your Income

Still invoicing with Word or Excel? It can mean a scramble at tax time for all those invoices. That amazing folder structure you had? Suddenly you realize there are missing invoices, and you have to scroll back through e-mails to find copies of them. Instead, track all your income with accounting software. It ensures you have a complete view of how much money your business has earned—at tax time and any time.

Track Invoice Income

If you send invoices through FreshBooks, you’ve already got a head start on knowing your invoice income. They’re all kept in one place and you can easily view a history of the invoices you sent last year.

If you realize there was work you forgot to invoice for, or that you accepted payment for without generating an invoice, you can easily whip one up now.

Tip: If you need to add taxes to your invoices, you can add taxes on each invoice. If you’re not sure how to do that, read our FAQ.

Track Other Income

For many business owners, there’s non-invoice income to keep track of as well. Maybe you’re a photographer who also sells images through a stock image service, and they pay you royalties directly. Or you could be a design blogger who also collects affiliate payments from Amazon and other retailers. In these cases, you don’t necessarily invoice your payees.



This is called “Other Income.” And (lucky you!) you can track it in FreshBooks too. As tax time approaches, ensure you’ve tracked all sources of income in FreshBooks for the complete picture of how much you’re earning. This includes things that may not have been invoiced.

Track all your different sources of income in Other Income. Remember that your taxable income includes invoices and other income: For example, Patreon, Shopify, Etsy, social media ad revenue, and even rent collected from tenants for rental properties that are part of your business. Learn more here!

Make Sure Your Received Payments Are Captured

Tracking your invoices is an important step. But it’s not really “income” until you get paid. So you also want to make sure you’re tracking all the payments you’ve received. Whether it’s online payment, check or e-transfer, make sure your invoice payment status is accurate at tax time.

Look through your outstanding or overdue invoices and make sure they’re really outstanding. If they were paid, you can easily log the payment now.

Tip: You can easily find all outstanding payments by searching for “overdue” or “outstanding” invoices. And if you’d like to make sure clients get reminders when they haven’t paid their invoices, read our FAQ that shows you how.

Step 2: Track Your Expenses

Income is just one side of the story. Just as you monitor the dollars coming in, you also need to see the dollars going out. This means tracking and categorizing your expenses so you have a complete view of:

  • How much money your business spent this year
  • What you spent it on
  • Which expenses count as business deductions at tax time

Add Expenses

Hopefully, you already use FreshBooks to track all your expenses on the go. So you know exactly how much you’re spending at all times.

But we’re all human and odds are there have been a few oddball expenses that didn’t get tracked. Remember, they could be deductible so you’ll want them tracked before you prepare your tax return.

You can manually add an individual expense. But if you haven’t been tracking expenses consistently, you can also automatically import your expenses. There are two ways to do this:

  1. Connect your bank account and import all your financial transactions (here’s our FAQ)
  2. Import expenses from the last year by uploading a CSV (read our FAQ here)

More Tips for Easy Expense Import:

  • Have a shoebox of paper receipts? Use our mobile app to quickly snap photos of them and get them into FreshBooks.
  • Already using Dropbox to store copies of your receipts? Connect your account to get your receipts into FreshBooks. If you’re not sure how to do that, just read our FAQ.

Organize and Categorize Expenses

Once all your expenses are logged in FreshBooks, you’ll want to organize and categorize them to prepare for tax filing. This means, for example, all the meals you ordered will be categorized as “Restaurants/Dining” under “Meals & Entertainment.”

Good news: The default categories in FreshBooks are tax-friendly, so they’ll correspond with what you need to use when filing your taxes. Want to learn more? Our FAQ will help.

Tip: Save yourself the last-minute scramble next year—stay on top of categorization by setting up categorization rules. This means FreshBooks will automatically categorize new expenses imported from your bank account (handy steps are found here).

Pro Tip: Have Employees or Contractors? Know What You’ve Spent on Payroll

Expenses can be a little more complicated for business owners with employees or contractors. Salaries are a significant expense to track. Good news: You can track your employee or contractor wages in FreshBooks. If you’re using Gusto, you can connect to FreshBooks so all your pay runs are automatically imported as expenses.

Step 3: File Your Taxes with Confidence

Phew! Hopefully that wasn’t too much work. Remember, if you continually track your income and expenses throughout the year, you won’t have to scramble with a lot of data entry come tax time.

Now you have your income and expenses in one place. Plus, with FreshBooks you have accounting reports to bring it all together for you. You can file your taxes with confidence knowing that you’ve captured every transaction.

See Your Profit

The following reports will help you understand just how much profit you made last year:

  • Profit & Loss Report: Allows you to see how much you earned, how much you spent and your ultimate profit (learn more)
  • Expense Report: Gives you a clear picture of your business expenses (learn more)

Discover What You Owe for Sales Tax

If you’ve been charging tax on your invoices, the handy Sales Tax Summary Report will give you a useful summary and a total amount. No need to dig through every invoice doing clumsy math. Just one report with one complete answer!

  • Sales Tax Summary Report: If you track sales tax, this report helps determine how much you own in sales taxes (learn more)

Work with an Accountant to Keep Your Books in Order

FreshBooks also has industry-standard double-entry accounting. So if you work with an accountant, they’ll probably want to spend time looking at the following reports:

  • Trial Balance helps your accountant spot any discrepancies in your books, allows you to produce financial statements, and ensures that your accounts balance out for a given period of time
  • A Balance Sheet is a snapshot of your business’ financial position on a given day, usually calculated at the end of the quarter or year
  • Your General Ledger shows you the details of every transaction going in and out of your accounts
  • The Chart of Accounts is a unique list of a business’ accounts, organized by assets, liabilities, income and expenses

Pro Tip: Have Employees or Contractors? They Need to Pay Their Taxes Too

Your employees need to pay their taxes too. That means you owe them certain paperwork:

  • Make sure you have W2s for all full-time employees and 1099s for any contractors
  • If you’re using Gusto, you can connect to FreshBooks so all your payroll expenses are tracked, and you can be sure your employee taxes are in order!

Step 4: Plan for What’s Next

Filing taxes can feel like crossing a finish line after a lengthy race. But before long, you should think about what you learned from this year that you could apply going forward. For example, if you scrambled to manually log all your expenses, consider how you can automate that process for next year.

We know right now you want to forget about taxes for a bit. But getting yourself on the right course today will pay dividends this time next year. Here’s how:

Get Ready to Be More Efficient

Keeping tabs on expenses shouldn’t be a one-and-done annual exercise. It’s good to know at all times how much money is leaving your business, where it’s going and if it’s really necessary. Here’s how to keep tabs on your expenses on an ongoing basis:

  • Automate expense capture with bank connections. Set up expense categorization rules so FreshBooks does the work for you!
  • Reconcile your bank accounts to make sure your transactions are properly tracked and categorized.

Know Who Your Best Clients Are

If your profit wasn’t where you’d like it to be, it’s good to spend some time looking at who your most valuable clients are, and doubling down on those clients who helped your business grow. In FreshBooks, there are two reports worth paying attention to:

  1. Payments Collected Report: This report breaks down all the payments you have recorded in your account in detail
  2. Accounts Aging Report: This report shows you which clients are taking a long time to pay their invoices
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Pro Tip: Have Employees or Contractors? Know How Your Staff Are Performing

If you have a team, you’ll also want to know who’s most productive, how time is being spent and ensure that any future hires are brought on to do work that improves your bottom line. In FreshBooks, you can find that information in your Time Tracking Reports. If you use Gusto, you can also find a summary of all employee and contractor payments and taxes.

Need Help Getting Organized?

Finally, know you don’t have to go it alone. If all this tax malarkey is just too overwhelming, you might want to find an accountant or bookkeeper. Good news: You can also invite your accountant/bookkeeper to your FreshBooks account. That way, they can help review your records to make sure they balance or enter transactions. For guidance on how to invite them, visit this FAQ.

At the end of the day, nobody loves tax time (well, maybe the taxman does). But, of course, it’s essential to get through it, and to track your income and expenses accurately. With FreshBooks, you’ll be able to do that at tax time. But, even more importantly, you’ll have an ongoing regimen to follow to keep your financials healthy!

This post was updated in February 2020.



about the author

FreshBooks is the #1 accounting software in the cloud designed to make billing painless for small businesses and their teams. Today, over 10 million small businesses use FreshBooks to effortlessly send professional looking invoices, organize expenses and track their billable time.