Keeping financial records organized and up to date is essential for freelancers. It makes tracking expenses, reconciling accounts, and generating business reports easier.
Freelancers must pay income taxes based on profits and keep track of expenses to maximize deductions when filing tax returns. Having a system to manage this aspect of your business will save you time during tax season.
Set Up A System
Having an easy-to-use accounting system is essential to freelancers and self-employed professionals. It will allow you to see all your financial numbers in a clear table and help you keep track of your finances throughout the year, saving you a headache at tax time.
Whether you use a spreadsheet or bookkeeping software, you must update your accounts regularly (weekly, fortnight, or monthly, rather than leaving it until you’re overwhelmed). By doing this regularly, you can ensure that your records match up with your bank account and you have an accurate record of all your expenses/costs.
Another vital point to remember is that you need to set aside cash for your tax bill as a freelancer. It can be a big shock for new freelancers used to their employer deducting a tax deduction from each paycheck. It’s best to do this by setting up a dedicated savings account or putting cash into a separate monthly envelope.
Separate Your Personal & Business Finances
While the benefits of effective bookkeeping Philadelphia PA may seem evident to seasoned entrepreneurs, new freelancers, and self-employed professionals often overlook them. Separating your personal and business expenses can help you streamline recordkeeping, make filing during tax season more effortless, and ensure complete compliance with applicable taxes.
Consider opening a bank account solely dedicated to your business assets. Doing this will allow you to see how much professional income is coming in and out of your company, making it easy to identify potential deductions.
Setting aside monthly cash for your annual tax bill is also good. It will ensure you remember to pay quarterly estimated taxes or avoid risking a costly tax audit, keeping all receipts, including any invoices you send your clients. Organizing these documents can help you quickly reconcile your books with your bank accounts. Using document management software can make this process even simpler.
Invoice Your Clients
It’s essential to have an organized system for tracking your expenses and income. Whether that’s a file cabinet full of spreadsheets or accounting software, you must follow a daily process so nothing slips through the cracks. It is especially true when it comes to getting paid for your services — you need to be able to show your income numbers clearly at tax time.
It’s also good to be proactive about sending invoices when you complete a service or ship goods to your client. Doing this will help keep you at the top of your customer’s minds and set a precedent for promptness. It can also make it easier to collect payments, as you can send out reminders before payment is due. You can even include an online payment link in your invoice emails to expedite the process.
Track Your Expenses
If you’re using software or spreadsheets to keep track of expenses and income, make sure your files are well-organized to access all the information you need quickly. A digital filing system and a straightforward process will help ensure that nothing falls through the cracks, especially during an IRS audit.
Since freelancers don’t have taxes withheld from their paychecks, keeping a close eye on how much money comes in throughout the year is essential. It will allow you to calculate your quarterly estimated taxes and avoid the headache of paying hefty fines in January.
Keeping detailed and accurate books will save you time and money when invoicing clients, reconciling your bank accounts, and filing your taxes. Follow these tips to set yourself up for success as a freelancer! If you’re ready to simplify your bookkeeping, try an expense & receipt tracking app.