Starting your own business or growing self-employed is an exciting stage in life where you can afford flexible working hours and total control over your earnings. However, this freedom comes with specific responsibilities. One of the essential elements of managing a freelance career is dealing with mandatory fees because you don’t have a hirer who deducts taxes from your earnings. Any violation of payments to budgets of different levels can lead to severe fines, so we recommend that you seek help from an accountant for self-employed who will help you calculate and register the necessary taxes.
Benefits of partnering with an accountant
You do not need to seek a bookkeeper’s help if you are a freelancer. However, the state requires outworkers to file tax returns and keep business books. If you need more time and knowledge to deal with financial work independently, you may look for help from a qualified accountant. Consider other benefits of working with professionals:
- Save time: a qualified bookkeeper can save you valuable hours doing all the work involved in completing and filing tax returns and other economic responsibilities that self-employed persons have. As your business develops, you will notice that effective communication with your accountant for self-employed is something you rely on more and more.
- Financial planning: whether you are looking to expand your business, invest, buy a property, or start saving, a specialist is available to provide valuable advice on both a personal and business level. They’ll share savings secrets, connect with mortgage experts, and teach you how to manage your money wisely.
- Referrals: accountants who offer services to small and medium businesses interact with many entrepreneurs. Such a large selection of contractors forms a solid network of contacts. A specialist can share recommendations with his clients, which allows you to increase sales.
- Accuracy: any entrepreneur should be aware of their earnings, tax liabilities, and the overall economic position of the firm. Due to his knowledge and practice, the specialist allows fewer inaccuracies in financial papers. Professionals are ready to compile reports and various documents to analyze earnings. Based on such data, it is easier to make rational decisions to achieve the financial stability of self-employment.
- They can represent you: have you ever worked with the IRS? Sometimes this may be problematic. The accountant may act as your intermediary and deal with the financial authority on your behalf. It allows you to eliminate stress and spend more time developing your business.
Responsible accountants carefully observe standards of ethics and professionalism; they are ready to answer any of your questions. The experts will do everything possible to ensure you do not overspend and receive the maximum tax deductions your company is entitled to by law.
What documents are needed to confirm the income of the self-employed
Salaried employees rarely have difficulty verifying income, as they need to present the W2 documentation that the employer fills out and bank statements. Paper W2 is as transparent as possible since it displays the actual earning of the employee, that is, accrued wages minus all mandatory fees. As we speak about freelance, these workers do not use the W2 form, meaning other documents must be used.
- Annual income tax return: it is the easiest option to show your annual revenue as it is the official document that the IRS recognizes. It is important to remember that counterparties are required to fill out such a form only for settlements over $600, so the forms received may not correspond to the total annual revenue. You must present additional papers, e.g., bank statements, to demonstrate the rest of the earnings.
- 1099 forms: you receive such a document in e-format from any counterparty who has transferred money to you of at least $600 per year. The payer fills out and submits such a paper to the IRS. You may employ a copy of this form when completing your tax return.
- Bank statements: when you need to report income for which there is no Form 1099, the easiest way to do this is via bank statements. You must clearly distinguish between business-related transactions if you apply the same account to keep personal and business earnings.
- Profit and loss statement: such a document shows the profitability of your business. It is advisable to regularly fill out such a form to make rational decisions and reasonable forecasts regarding the company’s development.
- Pay stubs: you may generate payment receipts to record every transaction and verify earnings. Such an invoice can be created manually, or you can utilize a particular software.
To get more information about which form is preferable to use to confirm the income of the self-employed and how to fill out the documents correctly, you should consult an accountant. The faster you can provide all the necessary data to a professional, the better your financial processes are organized, the more relevant your reporting is, and the less time it will take to put your business in order.
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.
The most crucial accounting practices for freelancers
Freelancers often don’t have the capital to work with a bookkeeper throughout the year, so they only use professionals during tax season. At the same time, it is vital to implement advanced tools and methods to perform financial work. Consider the most effective accounting practices:
- Revenue control: you must track all capital inflows to effectively manage your operations and not make mistakes when calculating taxes.
- Cost monitoring: besides vendor debt and employee payroll obligations (if any), freelancers can write off advertising, office rent, supplies, insurance, and business travel expenses. Each receipt must be carefully kept to verify deductions.
- Estimate net income: after you decide on cash flow, you need to calculate net income; To do this, you need to deduct expenses from your profit. Such a parameter lets us determine the cost of production and marginal profit to understand which products or services benefit the business most.
- Invest in buying bookkeeping programs: unless you’re a financial genius, you’ll need an efficient app to keep your ledgers in order. Online solutions allow you to track accounts payable and receivable, monitor costs, generate reports, and perform other economic procedures.
The answer to the question: do I need to hire an accountant for self-employed depends on your needs. Some businessmen rely on their experts to create financial statements, while other entrepreneurs do all the accounting themselves.
If you want to protect yourself from a headache, we recommend delegating your tasks of recording transactions and paying taxes to BooksTime specialists. Our team has a solid experience in the field of small business.
Qualified accountants provide unlimited support and maximum cost savings. They are ready to help with various tasks, from accounting services to payroll, calculating crdit payments, explaining audit rules, and starting a legal entity.
Chat with a BooksTime representative now. He will help you determine the optimal functions and tell you how accounting outsourcing may improve your business.
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Author: Charles Lutwidge