Freelancing has its privileges. It’s nice to be able to pick and choose your work, set your own hours, work from wherever you want to, and call yourself your own boss. However, along with all of those awesome pluses come a set of responsibilities that are unique to the self employed. One such area that seems to stump freelancers more often than not is accounting. Unfortunately, accounting mistakes can be very costly; therefore, freelancers must make special considerations throughout the year to ensure there are no mistakes come tax time. Here are five critical accounting tips for freelancers:
Automated invoicing. Sure, creating your own custom spreadsheet and doing your invoicing by hand is cheap and easy . . . but it also tends to turn into a mess when your freelancing business takes off. Invest in an invoicing software program that automates the process, or do your invoicing via an online accounting interface like freshbooks.com.
Estimated taxes. Pay your estimated taxes on time throughout the year, rather than wait for the big bill come tax season. Chances are those smaller payments will be much easier to make than one huge lump sum amount, so think ahead by paying now.
Record keeping. Buy a simple filing cabinet and organize all of your records. This includes contracts, invoices, and all important receipts. You will need them to itemize your tax forms at the end of the year and when they are all over the place, you are bound to leave some out. This could ultimately cost you, so it’s better to get into good record keeping habits now.
Don’t forget the small stuff. Many freelancers forget some of the simplest tax write offs associated with being a freelancer. For example, it is not unusual to leave things like office supplies and PayPal fees off the deductibles list, and those things can really add up.
Profit and loss statements. Make it a point to document all of your income and expenses as you go, and to use your accounting software to generate profit and loss statements on a regular basis. That way you are not in the dark when it comes to your finances and taxes.
As you can see, handling your accounting the right way is not that complicated. It is actually just a matter of forming some good habits and being diligent about the details. Follow these five simple tips throughout the year to make tracking your freelance income and filing your taxes as painless as possible.
About the Author: Nichol Linebrink is a freelance business consultant specializing in communications. She helps small businesses locate VOIP service provider contacts and other critical services so that they can keep themselves running with minimal overhead.
- Essential Tax Tips for Freelance Writers (2009taxes.org)
- Good Strategies For Freelancers (onlinesurveysforcash.org)