Bookkeeping for Freelancers: 4 Proven Best Practices

If you’re a freelance writer, accountant, translator, or consultant, you’ll likely do your own bookkeeping. Though bookkeeping for freelancers is crucial for a freelance business, keeping an accurate log of your clients and business cash flow isn’t always easy. 

If you’re struggling to keep up with your financing, check this article for the four proven best bookkeeping practices for freelancers! 

Keep track of your records

Staying on top of your bookkeeping is critical to filing your taxes. Besides staying organized, you also need to keep track of some essential information, documents, and expenses for tax seasons, including: 

  • Total hours you worked on a project
  • Cost per hour for each client
  • Records of products or services you’ve provided to your clients
  • Internet and phone bills
  • Power and utility bills
  • Office supplies
  • Educational expenses
  • Software subscription fees  
  • Office rent (if you work from home, you can claim mortgage and property taxes)

In most states, freelancers are required to keep business financial documentation for up to six years for tax purposes. It’s a good practice to keep your documentation and data well organized and safely preserved, regardless of where you work or how much money you make.

Try to incorporate a coherent archiving system that allows you to access your financial data like bills, receipts, and notes quickly and efficiently. You never know when you’ll need to find some random document from the past! 

You can also check out our step-by-step guide on filing taxes as an independent contractor to get yourself ready for tax season.  

Separate your personal and business expenses

It might be difficult to keep your personal and company finances separate as a freelancer. Most freelancers will likely pay their business expenses with their personal money. However, this immediate benefit will lead to a huge hassle to sort through and separate personal and business expenses. It can also be an extra cost if you hire an accountant or bookkeeper to do it for you.

You should open up a business-only bank account as soon as you start your freelance business. It doesn’t necessarily need to be a business account. A second bank account would be sufficient when you’re just getting started.

This separation in your finances helps you better visualize where your money is going and coming from, making your tax preparation and cash flow analysis considerably more precise. This simple practice also helps you avoid financial problems in the future and determine which expenses are necessary for your work.

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Set reminders for payment

A freelancer is likely to work with many projects and clients, meaning that your payment depends on your clients’ schedules. 

Staying on top of your income may be difficult when you’re waiting to be paid. Since your clients likely focus on their business and forget upcoming bill dates, you may receive your payments later than expected. These overdue payments can affect your cash flow and planned income. 

A solution to this is to send out invoices with clear due dates and set up automatic reminders for payments and overdue payments. A little effort can go a long way in helping you receive your payments on time. 

File your taxes

Filing taxes can be a challenge for a freelancer, especially when you need to handle all of your business’s aspects.

Before you file your tax returns, think about your business structure. As a freelancer, your business is most likely a sole proprietorship. In this case, you pay your business taxes on your tax return by filing a Schedule C form with your Form 1040 Individual tax return. On the other hand, if you’re in a partnership or have formed an LLC (limited liability company), you can consider hiring a tax professional or using accounting software. And Shoeboxed can help you with that! 

Shoeboxed is a receipt management application that turns your receipts and business documents into a digital format in just one click by taking a picture straight from your smartphone or scanning a pdf. It automatically extracts, categorizes, and human-verifies important data from your receipts so that you can go over and check your records anytime with ease. Shoeboxed ensures you will always have your receipts securely stored and ready for tax purposes.

The bottom line

By incorporating some of the helpful best bookkeeping practices for freelancers outlined in this article, you can streamline your financial record-keeping, spend more time on your business’s core tasks and bring the best services to your clients. If you’d like to discover more helpful accounting and bookkeeping knowledge, tax tips, and engaging entrepreneur stories, don’t forget to subscribe to the Shoeboxed blog
Access your Shoeboxed account from your web browser or smartphone app. Stay audit-ready with Shoeboxed for FREE now!

Maximizing 2016 Tax Deductions: Tips & Tools for Millennial Freelancers

The earlier you organize expenses and keep track of potential deductions, the more money you’ll save in the long run.

Millennial freelancers are a force to be reckoned with and the numbers are there to prove it. According to a national survey from Freelancers Union and Upwork (formerly oDesk), 38% of millennials are freelancing — more than any other generation. Considering that they now make up 45% of entire workforce, this group of 20 and 30-somethings is taking the freelancing industry by storm.

It’s clear to see why. The benefits of being a freelancer align with the lifestyle that millennials seek. They want flexibility, independence and creativity – a perfect formula for a rise in freelancing jobs. But while there are many perks to being a freelancer, there are also stodgy downsides such as complicated taxes and the responsibility of tedious administrative tasks.

Luckily, there are ways to overcome these drawbacks. Tax season may be months away, but that doesn’t mean millennial freelancers can’t start prepping now. The earlier you organize expenses and understand tricks and tips to maximize deductions to make tax season a breeze, the more money you’ll save in the long run. Start sooner rather than later with these recommended tools and tricks:

Research Deductions in the Freelancers Union Tax Blog
One thing freelancers shouldn’t complain to the IRS about is the amount of tax breaks they offer. Tax breaks give freelancers a valuable opportunity to win back money they’ve been spending on their business. It’s also a unique way to encourage entrepreneurship. There’s only one problem: it’s hard to keep track of what’s what, and deductions often change on a yearly basis.

Learn about which expenses qualify for which tax break by reading the in-depth tax blog written by the awesome folks at Freelancers Union. Freelancers Union is a nonprofit organization and insurance company that advocates for the rights of freelancers. Their blog posts are written by freelance veterans and include everything from how to calculate hourly rates to how to write client contracts.

Freelancers Union Shoeboxed

Don’t procrastinate! Use IFTTT for Important Date Reminders
Unless you want to have a very stressful week, don’t wait until right before April 15 to prep and file your taxes! When you take your time to carefully approach filing your taxes, it won’t seem as stressful or time consuming. You’re more likely to make an error or miss out on a deduction if you rush the process.

Eliminate the risk of filing late by using IFTTT. Simply set a receipe that sends a email and/or text reminders on certain dates leading up to the April 15 deadline. This nifty web tool can also help with QET deadline reminders.

IFTTT Shoeboxed

When in doubt, ask for help using sites like NerdWallet
With an endless supply of information, the Internet of things can answer any question you may have related to taxes. Sometimes though, having 10+ pages pulled up with an overwhelming amount of information can make material difficult to comprehend (which is especially true for taxes). Depending on the complexity of your question, it may be best to approach a tax expert or CPA. Tax deductions change often — stay ahead of the curve and make sure you’re taking advantage of ways to save money by asking for help.

Enter NerdWallet, an educational blog that helps millennials make smarter financial decisions by breaking down complex financial information into simple terms. The writers at NerdWallet can tell you exactly which expenses qualify for which tax break as you track your finances into tax season. They also have on-demand financial professionals available to answer your tax questions directly from their homepage.

NerdWallet Shoeboxed Freelance

Organize Your Receipts and Expenses by Tax Category with Shoeboxed
One of the easiest way for freelancers to maximize tax deductions is by staying organized and keeping updated records of receipts, payments and expenses. The IRS demands documented proof for claims, so having everything stored and accessible can reduce a substantial amount of time and pressure. Organization also helps maximize deductions and reimbursements without the hassle of scrambling to find misplaced financial records.

Apps like Shoeboxed let on-the-go freelancers snap pictures of receipts using their phone, which are then digitally stored as IRS-accepted images. Receipts are processed and organized so that vendor, total amount, date, tax category and payment type are extracted and available in a searchable online account. Simply make a note that the receipt is deductible and boom – you have a digital archive of everything you can write off for taxes.

Shoeboxed Freelancers

Use these tools and tips to help make your freelance tax season the smoothest (and most time-saving) yet!