Accounting for Freelancers: What You Need to Know

While freelancing is an exciting prospect, it requires a lot of dedication and motivation. You will have to plan ahead in order to get the most clients and get your business running. One of the most challenging tasks of a freelancer is getting paid. You may already have different clients, making the amendments of paying you from time to time. Now, if you’re using freelancing platforms like Fiverr or Upwork, it automatically manages your accounting. But if you’re like a ‘one-man army’, doing all on your own, you might have to get some things straight. 

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Keeping track of what you owe to others and what others owe you is important. 

So to conclude the introduction, do you want to run a successful freelancing business? Do you want to save yourself from tax penalties? And most importantly, do you want to keep a balance between your expenses and financial goals? Here are some points that will help you understand accounting for freelancers.

Open a Separate Bank Account

The first step in Accounting 101 is to open a separate bank account for freelancing. Doing so will make all your transactions separate from your personal account. And it is also an absolute godsend if you have a small business tax return. 

Speaking of this, being a freelancing comes at a payout as well. You will always have business expenses like working space, equipment, and related stuff that should be deducted from your tax sheet. 

Finding a good working space is the key here because it is the main expense of your freelancing journey. For a simple, yet affordable approach, go for a coworking space. 

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Stay Organized to Avoid Surprises

Staying on top of your accounting game is the key here. If you don’t want to tackle yourself in sheets and receipts, get organized right away. The foremost thing here is to set aside a dedicated time for bookkeeping every week. If you fall just a little bit behind, you will struggle to catch up with the expenses. 

The easiest way to remain organized is using a trusted app. The accounting software I use is LessAccounting.

Some of the important points that you should consider include:

  • Your working hours in business (For each job and client)
  • Your business expenses (Including a light bulb or a cup of coffee)
  • All the payments you make (Both Debit and Credit)
  • Cost per hour for a specific job

Once you keep track of all the aforementioned points, do the following

  • Make invoices online for all the data
  • Make a separate section for account receivable and payable
  • Keep track of cash flow

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Once you organize the data, it will automatically speak to you. Like where should you spend more expenses, where should you cut your budget, who is your best client, which one of your clients doesn’t pay on time, etc.

Prepare Tax Return

This is where the previous point comes in handy. Once you keep track of all your data, filing for tax returns will be much easier. Just make sure that you offset your expenses against the tax bill. For this, you can seek professional help from a bookkeeper or an accountant. They can better guide you on your local state laws.

Conclusion

So this is it, accounting is as much important as if you’re a business owner or a freelancer. It helps keep track of your expenses, it clears the view of your business and helps make tax payments. Without proper data of your business, you’ll struggle a lot in the dark. So take control of bookkeeping before it’s too late.

Photo credits: coworkinglondon.com

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