According to Forbes, 57 million workers in the US are freelancers, confirming the transition to self-employment. If you position yourself as self-employed, you probably like the flexibility and freedom of managing your activities. Unfortunately, there are some downsides to doing this on your own, and financial management is one of those downsides. Bookkeeping can seem daunting, but with the proper knowledge, tools, and assistants of accountant for freelancers, tackling financial matters is greatly simplified.
What is freelance accounting?
By law, all freelancers must record transaction data, bill clients, file returns, and pay income taxes. Proper bookkeeping makes these tasks possible.
Accounting provides keeping records and controlling finances. As a freelancer, you must show the following data:
- accounts receivable
- accounts payable
You may use accounting data to generate financial reports, make business decisions, calculate your tax burden, and file returns. Whether you plan to manage your cash flow or entrust this work to professionals, it is essential to learn the basics of accounting in the first months of running your business to manage your finances as efficiently as possible.
Can a freelancer perform financial procedures independently?
Starting as a self-employed person, you might feel that taxes and accounting are easy to do without outside help. However, don’t get ahead of yourself. In addition to the intelligent bookkeeping you must do, keeping accurate records of each business transaction, you must study tax laws and all the deductions that apply to you.
Understanding the complexity of your bookkeeping allows you to identify your needs. In theory, your accounting life should be easy enough if you’re a freelancer with a few lump sums and zero outgoings. On the contrary, if you interact with subcontractors, you have a coworking space for which you need to pay a fee, equipment, e.g., a laptop and a smartphone, and entrance fees of various types and sizes. It will be easier to delegate financial tasks to a professional.
Keeping proper financial records is time-intensive and small mistakes can be costly. BooksTime makes sure your numbers are 100% accurate so you can focus on growing your business.
Top reasons to hire an accountant
If it seems to you the only help from a bookkeeper is that he will help decipher the tax code’s incomprehensible text, you are mistaken. Having a personal accountant to oversee your activities throughout the year, not just during the filing period, can help in several ways, including:
- Save time: from personal registration to handling monthly bills; there are a lot of financial responsibilities that take up your time. However, you may free up valuable hours of work and focus on more important tasks if you seek the help of an accountant for freelancers. It can lead to higher earnings as you have more time to do a hobby.
- Burden relief: given ever-changing legal requirements and the costly consequences of defaulting on obligations, financial management is often a concern for freelancers. However, you can rely on accountants to avoid expensive mistakes and calculate liabilities correctly.
- Grow your business: an expert will help you make financial decisions and conduct a thorough analysis of how to increase revenue, improve commercial sales and determine which services generate the maximum profit. Treat him like a business consultant. He will help expand your freelance business in scale and revenue, help you transform it into a commercial company, and explain how to get credit.
A qualified accountant will help you understand your current financial situation. It will give you an idea of how far you have come and still have to go. More importantly, a specialist can find and point you to transaction errors, e.g., underpricing, which will help make your business more efficient.
How to find a good bookkeeper?
Before appointing an accountant, you need to meet with him or talk on the phone. Find out if it’s right for your freelance business. We’ve put together a few questions to ask accounting professionals before hiring them:
- Do you have experience dealing with freelancers? Such a type of business is different from standard workers because they have non-standard business costs. The accountant must correctly classify this spending according to the kit of criteria and legally add them to business expenses.
- Do you use traditional or digital methods in your activities? If you are hiring a bookkeeper remotely, they will work digitally and help you electronically record all transactions.
- What financial data protection methods do you use? It is vital to make sure that the accountant has a secure connection. A secure connection protects your login credentials.
- What accounting software do you use? Virtual platforms bring excellent benefits; they allow you to perform error-free transactions faster and more efficiently.
- Can you prepare a tax return? Some accountants offer to outsource the work associated with preparing tax reports. It is crucial to know in advance who will manage your compulsory fees.
- What is your freelance bookkeeping fee? The bookkeeper must announce the cost of calculating income taxes and other essential procedures. Ask how much remuneration a specialist takes before assigning tasks to him.
Remember that accountants aren’t just busy with standard tax returns. If you need additional services related to financial transactions, including bookkeeping, work with balance sheets, and other financial services, you can also find them. Be prepared to follow the trial and error method to find the right specialist.
Accounting software for freelancers
Today, there are many various platforms for self-employed persons and small businesses. Instead of hiring multiple people to do different types of work, you can install a software program that can handle most tasks. Experts have compiled a list of features to consider when choosing the right software:
- Calculating tax payments: the government requires freelancers to pay quarterly taxes on their estimated annual income. The best platforms in 2022 include tax assessments, form guides, and reminders when making your dues.
- Tax deductions: most freelancers are eligible for deductions that reduce taxable profit. Try to find an accounting app that lets you organize your business expenses into tax brackets to make it easier to write off at the end of the year.
- Proper billing: independent contractors often rely on invoices to generate revenue. If this applies to you, select a program that automatically reminds you of late payments and offers built-in bill payment options.
The best accounting software is easy to use, affordable, and powerful enough to provide optimal functionality. It allows you to share financial information with your accountant at no additional usage fee. Such contact gives your bookkeeper a clear and organized method of evaluating your finances and helps you avoid tax filing penalties, invest wisely, and keep your business afloat.
Some accounting tips for freelancers
Doing your bookkeeping right from day one can make a massive difference in how successful you will be in your first year as a freelancer. To help those in the early stages of building their own remote business to minimize the risk of making costly mistakes.
Determine the accounting method
The bookkeeping method you choose determines how and when you record transactions. Freelancers can choose between three options:
- Cash accounting.
- Accrual bookkeeping.
- Hybrid variant.
Cash accounting is the easiest option as you record transactions as money changes hands. The accrual method records transactions as they occur, even if payment occurs later. Hybrid bookkeeping combines the options listed above; you use accrual accounts but record transactions only after capital are received.
Choose an accounting system.
After you decide on the method, you need to choose a system for recording transactions. Typically, there are three options available:
- Recording data manually, e.g., using spreadsheets.
- Hire an accountant.
- Implement special software.
Recording information manually is the cheapest but also the most time-consuming option. Hiring a specialist is more expensive, but it saves time to solve other problems. Special software is the golden mean that simplifies accountancy. Whichever option you choose, be sure to track the movement of capital.
Create and update the chart of accounts
A chart of accounts (COA) makes it easier to work with financial accounts. Use this accounting tool to manage incoming and outgoing cash flows. You can also use COA when budgeting. The most common COAs are checking accounts, receivables, and accounts payable.
Keep records for at least three years
The IRS requires freelancers to keep documents that prove income and expenses for at least three years, although this period may be extended in some situations. Don’t let the hard work of writing financial procedures go to waste. Store information in a secure location, such as cloud software or a locked cabinet.
In this guide, we speak about a qualified accountant for freelancers who provides ongoing management of your finances and share his experience in different areas of the business. It would help if you treated him as a trusted partner who offers helpful and unbiased advice to help you grow your business. Specialists deal with hundreds or even thousands of companies similar to yours. Freelancers sometimes feel lonely and isolated, like they’re being forced to solve unique problems that no one else has faced. While every business is truly individual and the difficulties you meet will be particular, the accountant has repeatedly found himself in such situations and knows how to get out of them with maximum benefit.
Author: Charles Lutwidge