Freelancers Are Business Owners
Freelancing comes with lots of perks; flexible hours, the option to work from home and not having a boss is kind of nice. One area that is a bit of a headache is that as a freelancer, you are usually the one responsible for your own accounting and taxes. For some people this can seem stressful and downright scary. No one wants to get in trouble with the tax authorities for filing incorrectly or paying too much in taxes. Then there is the monthly bookkeeping that needs to be done. Hiring a bookkeeper and accountant can be expensive. It may seem daunting at first, but taking care of your own taxes and accounting isn’t that bad, especially if you set yourself up to have an organized system.
To make it easier, we put together our top tips for freelancers doing their own taxes and accounting
1. Setup A Receipt Tracking System
Any money you spend on your freelance business needs to be tracked. From the coffee you bought for a client to your website subscription costs. Having a system that helps you stay on top of your receipts will save you lots of time and stress at tax time. There are receipts scanners and expense tracking apps that can make this a whole lot easier. An expense tracker like Fresh Books, make this process easy and it a lot cheaper than hiring a book keeper.
2. Monthly Maintenance
Give yourself one day a month to spend an hour or two making sure your monthly books are in order. Always, check monthly statements to make sure you are not missing any monthly payments or were overcharged somewhere. Finding out about overpayments 5 months down the road is never pretty, spending an hour religiously each month will help you avoid that sort of pitfall. Setup a reminder in your calendar that repeats itself if you need to but make sure you never skip that block of time. You also want to make sure all your clients have paid you by month end or else you need to start chasing payments and charging late fees.
3. Know Your Tax Deductions
A freelancer is a small business which means you can write off expenses. Discussing this with an accountant is advisable. You can write off portions of your home office space and car payments within reason, an accountant will be able to tell you what is advisable in your situation. Once you have this explained, you can be confident in repeating it for future tax filings. Don't forget about charity donations. Donating to a charity is a tax write off so make sure you keep your receipts (see step 1).
4. Predict Your Tax Bill Ahead of Time
If you have steady income and consistent expenses you can quickly calculate how much money you will need to set aside come tax time. Break it down to a monthly amount and set up a payment plan for yourself so that you are never alarmed come tax time.
5. Don’t Forget About Retirement
Contributions to your retirement fund are a deduction, so why not do it? Also, there are no retirement pensions waiting for you my freelancing friend so you have to set that aside yourself every month.
6. Organize Your Income and Expenses
Keep your income and expenses organized under one roof. There are accounting softwares like Quickbooks available or a simple Excel spreadsheet can do. Try having income come under one payment method if possible. Freelancers that accept payment through Paypal, check, etransfers, freelance sites etc will be more likely to miss recording a payment since there are several places they need to look. Having payments go through one process like Paypal, makes things easier to track. Paypal lets your send out invoices, receive payments, record late payments, send reminders and then print a monthly summary.
We hope that helps you get your accounting and tax systems in tip top shape this year. See our blog for more freelancing tips.