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.
You might also be interested in:
- Finding the Best Tax Solution for Small Businesses in 2022
- 5 Common Accounting Mistakes Small Businesses Should Avoid
- Balance Sheet Explained – A Basic Guide
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!
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