5 Accounting Basics for Freelancing Industry Newbies
Getting into freelancing can require more work than a corporate job. Freelancers do all the jobs, including managing their finances which could be a difficult task to do. Balancing client workload while thinking of filing taxes and ensuring that the finances are stable can become tricky. However, learning to keep track of your finances can help you better as you expand into a more extensive freelancing career.
1. Track Your Income
The first thing to accomplish is to keep track of your income in freelancing. There is a massive chance that none of your clients is withholding tax from your paychecks. Therefore, it will be your duty to pay for all the taxes incurred in every transaction.
Listing down your income every month can help you compute how much your tax is for easier filling. Tracking your income also helps in preventing underpayment of self-employment tax.
Most of the time, although clients won’t withhold money from their payments, they’re still legally required to report the amount they pay you. Therefore, it’s essential to have a clear note of all the payments made if a client requests it for personal use.
2. File for Taxes
The government expects freelancers to pay taxes if their income exceeds $4,000 per year. If you’re only starting as a freelancer, you can file for a sole trader classification as it identifies freelancers working solely without any help from an external entity. As a sole trader, it is your responsibility to keep essential freelance records, such as your invoices, for five years. However, if your freelance business stops, you should also notify the government within 28 days.
3. Utilise Financing Softwares
Managing a lot of things at the same time can get confusing. Therefore, it would be helpful to use software platforms that can help you estimate your quarterly taxes and keep track of all your earnings. Computing software can also help you maximise your tax deductions. As a freelancer, you may be able to write off business expenses such as advertising costs, office supplies, travel, and others.
It’s also vital to be extra careful in organising your expenses from your business expenses. Your tally should be as accurate as possible, avoiding potential red flags on your tax return and a bad audit.
4. Stay Organised
Tracking your income and expenses is only a part of accounting for your freelance earnings. Next, it’s essential to consider doing things more organised to avoid mix-ups and confusion. It’s crucial to make a list of information needed for a tax return and commit to filing the information in your logs right after receiving them.
The information may contain client payment amounts, invoice numbers, travel expenses, transfers from business bank accounts, office rent (utility bills if you’re working from home), receipts for purchases, website hosting, and more.
Keep Personal and Business Expenses Separate
A way to keep things organised is by keeping personal and business expenses separate. Both costs can be managed better by opening a new checking account solely for business. All client payments, transactions, and costs should be directed to this account. If you’re using a debit card to pay for business-related expenses, it should also be connected to the business account.
Opening two different accounts for personal and business use does not only keep things organised and taken care of. It also promotes saving money and more manageable tax payments. Having two separate accounts also allows tracking software to accurately track your earnings, expenses, and estimated taxes.
If you’re considering going full-time in freelancing, make sure that you start it on a good note. From the start, track all your income and expenses to make it easier to file taxes and pay your dues mandated by the government. Although you’re not working for a company, make sure to comply with your government responsibilities.
However, if your plate is too full and you need extra help, hiring a personal accountant is also a good business move for you. Since someone else is tracking your finances for you, it’s easier to accept more projects to work on without worrying about other things. New Wave Accounting can provide you with the best business accountants from the Gold Coast to lend you an extra hand. Contact us today, and let’s discuss how we can help you.