Expense Red Flags: 5 Costs That Could Be Dragging You Down

How to Spot and Fix The 5 Common Expense Red FLAGS

Disclaimer: This blog is intended for educational purposes only and does not constitute tax advice. For guidance tailored to your specific business and tax situation, please consult your CPA or tax advisor.

Keeping your expenses in check isn’t just about cutting costs, it’s also about making sure expenses are recorded correctly and your financial reports are telling the truth. That’s where an expense audit comes in. It’s a routine check-in on your business spending, and it should be done regularly, think quarterly, to make sure your financial data stays accurate and useful.

Start with these five common expense red flags to make sure your numbers are accurate and your business is running as efficiently as possible.

1. Business vs. Personal Expenses

A grocery run here. A quick Target stop there. Maybe that vacation Airbnb slipped through too. It’s easier than you think for personal spending to sneak into your business books.

What to check:

• Any charges on your business card that aren’t 100% business-related

• Owner draw transactions that lack documentation

• Subscriptions or memberships that might not be used for business

  
  

What to do:

According to the IRS, a business expense must be both ordinary and necessary for your trade or business. Personal expenses generally do not meet this standard and should not be deducted. Review all expenses, flag anything that is personal and reclassify it. If necessary, reimburse the business. Once you’ve identified personal expenses in the business, take steps to prevent it from happening again like covering that card with a sticky note in your wallet. We’ll dive deeper into commingling funds, and how to prevent it, in our next blog.

2. Meals: What's Deductible and What’s Not?

Business meals can be confusing, but here’s the gist. The IRS generally allows you to deduct 50% of the cost of meals related to your business. However, there are exceptions where the full cost is deductible.

Here’s a quick breakdown:

• 50% deductible meals: Meals with clients, customers, or employees—including meals while traveling for work. These are typically what we call “business meals.”

• 100% deductible meals: Meals provided at company events, office parties, or meals included as part of employee compensation. These can be tracked separately as “office meals” or “company meals.”

What to watch for:

• Meals with family or friends that aren’t related to business.

• Meals you have alone, unless traveling for business purposes.

• Meals incorrectly classified as fully deductible when they do not meet IRS rules for that type of meal.

What to do: 

Keep detailed records including who you met with, the business purpose, and receipts. Consider setting up two separate accounts in your Chart of Accounts: one for 50% deductible business meals, and another for 100% deductible office or company meals. This helps keep your records clean and tax-ready.

3. Gifts: Know the Limits

Gifts to clients and employees can be a thoughtful way to show appreciation, but the IRS has strict rules around deductions. For business gifts to clients, the deductible amount is limited to $25 per recipient per year. Employee gifts, such as holiday bonuses or non-cash awards, follow different guidelines and should generally be handled through payroll rather than an expense. 

What to check:

• Proper documentation for each gift

• Receipts that include a list of recipients’ names

• Gifts recorded as an expense without supporting details

• Employee gifts properly classified as compensation when applicable

What to do instead:

If you want to be generous beyond the $25 limit for clients, consider branded merchandise or client events, which are often deductible as marketing expenses. For employees, consider bonuses or awards that comply with IRS rules and are handled through payroll.

Always keep clear, detailed records to support your deductions

4. Recurring Charges That Add Up

Recurring expenses are sneaky. That $9.99 software subscription you forgot about? Multiply it across a few platforms, and suddenly you’re spending hundreds each month on tools you don’t use.

What to check:

• Monthly or annual subscriptions

• Tools you used during a project but no longer need

• Duplicate services that serve the same purpose

What to do:

Audit your subscriptions quarterly. Cancel what you’re not using, and consolidate wherever possible. Even better, create a business tool inventory and set a reminder to review before annual renewals hit.

5.Vendor Name Mismatches (or Missing Altogether)

When expenses are recorded under vague or generic names like “Venmo,” “PayPal,” or “Square,” or when no vendor name is entered at all, it’s hard to know where the money actually went. Without accurate vendor names, you lose important context for your financial reports and could miss required 1099 filings at year-end.

What to check:

• Vendor fields that list only payment processors (like PayPal or Venmo)

• Transactions missing vendor names entirely

• Duplicate vendor entries in QuickBooks with inconsistent formatting

• Lack of detail in the memo or description fields

  
  

What to do:

Update your vendor records to reflect the actual supplier or contractor paid, not just the platform used. When using bank rules, customize them to assign the correct vendor name and category. Clean, consistent vendor names help you stay compliant with 1099 requirements and improve the accuracy of your reports.

Final Thoughts

A quick review of these five expense categories can save you time, stress, and money. Better yet, a regular expense audit can help you make smarter decisions about where your money is going and where it’s truly serving your business.

Need help reviewing your books with fresh eyes?

Schedule a consultation and let’s clean things up together.