Bookkeeping for Freelancers 101
As a freelancer, getting paid and being ready for tax season are crucial parts of your business. That’s why understanding the basics of bookkeeping is so important.
Well, sometimes, it can be a little bit hard to keep track of your clients, when and how much they should pay you. Understanding how to manage your accounting and the tools you can use can help you to stay on top of any invoices, as well as collect payments from clients who owe you money.
Bookkeeping can be challenging if it’s not handled correctly. However, there are some strategies freelancers can use to have an easy bookkeeping experience. Finding an effective system and process for managing your accounting will help you save your time and money by calculating expenses, compiling invoices, and paying quarterly taxes throughout the year.
Here’s a quick crash course, bookkeeping for freelancers 101, to help you understand all of these basic things each freelancer should know about bookkeeping.
Why Is Bookkeeping So Important
As a freelancer, you need to know how much money not only have you made but also spent when you file your taxes. Having that in mind, you also need to know that doing your bookkeeping, and doing it regularly, is for more than just taxes. Bookkeeping can also help you keep track of all your vital tax deductions.
Tax deduction directly impacts how much money you have to pay in taxes every year. Want to know what’s the easiest way to miss tax deductions? By going through your bookkeeping, a night before taxes is due.
Any small business, as well as freelancers, has to pay income taxes quarterly and then file tax returns at the end of the year. Having all of that information precisely recorded and documented will make the process easy and efficient. You should make bookkeeping a part of your day-to-day routine so you can, later on, spend less time on it. This will give you more time to focus on your daily job and even help you plan your future growth.
When you’re on top of bookkeeping, you can anticipate possible future problems that your business might face.
Essential Bookkeeping Tips for Freelancers
Always keeping track and knowing what’s going on with your money can help you succeed as a freelancer. Set your freelance job up for success by dedicating your time daily, so that you can organize your bookkeeping and ensure you write in every invoice or expense receipt.
Set Up a System That Works Best for You
Bookkeeping can be an intimidating task for freelancers, so having a system that works for you is very important.
Lucky for you, many tools can help you easily input your financial data anywhere and at any time. Any accounting software will help you to organize your finances just by tracking outstanding invoices, managing your cash flow, invoicing clients, and making sure you have accurate financial records.
You could also hire a bookkeeper to help you devote more time to important things e.g., finding more clients. Probably the most important thing is establishing a bookkeeping method that works for your freelance career.
If you are getting paid for your time, you need to find an organized and accessible way to do your bookkeeping, so you can avoid potentially wasting time or missing out on income.
Keeping track of your bookkeeping is very important when you’re filing your taxes. Here is what you can track:
- Jobs you’ve done for your clients
- Cost per hour
- Any business expenses you have
- Payments made
- Transfers to banks
- Payments from clients
- Hours worked
Separate your Personal from your Professional Assets
Being a freelancer, it can get a little bit tricky trying to separate your personal and business finances.
To avoid any possible confusion, you should think about opening up a separate bank account for business transactions. Separation in your finances can make your life so much easier.
This can also help tremendously during tax season. If you have all of your company’s costs on your business credit card, it becomes simple and easy to claim any deductions for those expenses.
Set a Budget Right Away
Setting a budget right away will help you manage your cash flow and ensure you have organized tax records. Once you do that, you can start claiming tax deductions for supply costs, as well as rent, travel, and vehicle expenses that are related to your business. If you work from your home, you may also be able to deduct some expenses for your dedicated home office. Sticking to a strict budget plan can help you develop healthy financial habits as a freelancer. This well-through money management will help your business grow in the long run, that’s for sure.
Send Invoices Regularly
Making sure you get your payments is, believe it or not, a tough task for some freelancers.
If you’re waiting to get paid it can be difficult to keep on top of your income. With that in mind, you need to protect your cash flow and get your income. Always make sure you are getting paid on time by clients.
To help you get paid on time, you can send out invoices with clear due dates and set up late payment reminders for due and overdue payments. You can’t get money without invoices, so it’s essential to make sure your invoices are efficient.
They should include your contact information, an invoice number, the issue date, and the due date.
Other very important things to include are the services provided and the total due for them. The easiest way to make this process quick and easy is to set up invoicing software to put all this information together and send invoices on your behalf.
This will help keep you on a good schedule because if you send your invoices late, you won’t get your money on your designated payday.
Hire a Professional
You don’t have to have a large business to hire an accountant. Even freelancers, who work from the comfort of their own homes, can afford and benefit from working with a professional. The bookkeeper doesn’t have to be your full-time employee to help with the process.
If you need a bookkeeping solution that can address all of your needs, work with our professionals at Your Part Time Accountant.