Freelancing provides numerous opportunities for flexibility; however, it also requires managing one’s finances and filing their taxes themselves. Maintaining accurate books can help avoid expensive mistakes while providing preparation for tax season.
No matter whether you are an established freelancer or starting out, these bookkeeping tips will make your job simpler and help you achieve your business goals.
1. Create a Schedule of Income and Expenses
As a freelancer, tracking your finances is integral to success. Doing so will keep you organized, ensure payments don’t fall through or taxes go unpaid too little, and prepare you for tax season.
Freelancers must file their own taxes, unlike employees at corporations whose employer withholds federal and state income taxes from each paycheck. You must determine your earnings from freelance work before deducting all legitimate business expenses to determine your freelance profit on which to file taxes.
Consider some of the following expenses when writing off expenses related to running your own business: the costs associated with home office space and equipment, health insurance premiums, travel, meals and entertainment related to business travel and many other items that can be written off as tax write offs.
2. Set Up a Separate Bank Account for Your Business
An early opening of a business bank account can make your organization appear more professional and make tracking money coming and going easier. Furthermore, having one can facilitate applying for loans or credit cards more quickly as well as help build credit history for the business itself.
Separate bank accounts make it simple to organize business expenses and claim tax deductions when filing taxes. A bookkeeping app such as Shoeboxed may help keep records organized and easily accessible.
Be sure to set aside part of your earnings each month for taxes – it will save you plenty of headaches come tax season!
3. Send Out Invoices with Clear Due Dates
Setting clear invoice dates for their clients is of utmost importance for freelancers, as this will prevent misunderstandings and ensure payments arrive on time. Invoice dates also help improve cash flow management and allow for better planning of expenses related to business expenses.
Don’t forget to keep track of all your income – both current and anticipated (cash basis), as well as expenses that qualify as tax deductible expenses – this will make preparing and filing taxes much simpler come tax time.
At Wellden Turnbull, we specialize in bookkeeping, accounting and tax advice for self-employed professionals. Reach out today to discover how we can assist with managing your finances; click here for a complimentary consultation!
4. Set Aside a Bit of Cash Each Month
Even freelancers with full time jobs and steady incomes may experience slower months, making an emergency fund essential. Track expenses as you spend them or record impending payments (accrual).
No matter if it be spreadsheet or accounting software, find a system that suits you best to clearly see all incoming and outgoing transactions by category.
Make sure that a percentage of every invoice that’s paid goes toward taxes. Your amount owed could fluctuate over time, and paying on time is key in order to avoid penalties and interest charges.
5. Organize Your Receipts
Though it can be tempting to throw your receipts into your purse or pocket, for optimal efficiency it’s better to organize them in an easily accessible space – such as a shoebox filled with envelopes labeled by month or expense type, an accordion folder, or file cabinet. If opting for physical organizers like these make sure that there are labeled dividers so you can categorize receipts in advance.
Also, many people opt to scan and save receipts on their computer or smartphone instead of keeping paper clutter under control. This solution provides significant relief from having to deal with paper clutter.
Keep in mind that keeping track of every business expense is key for tax deductions. Form a habit of organizing receipts as soon as they come in – doing this will spare you from having to search for them later when filing taxes!
