Being a freelancer is a satisfying feeling. You are in business for yourself and own it all. However, owning it all means that you have to document all of your finances on your own as well. The importance of accurate bookkeeping is an essential part of any successful business and can hurt your business if it is done wrong. A big part of this is for your taxes, which can be disastrous if they are not neatly organized and make you pay more. You don’t need to be an expert in accounting to get your books together. Here are some basics to consider when you start to tackle bookkeeping for your freelance website design business.
Tracking System
All businesses keep some sort of record of the payments they receive. As a freelancer, you are required to do this even without a 1099 from your clients. There are two ways that you can do this:
Cash Basis Accounting
- This is when you document each payment as soon as you are paid
Accrual
- Using this type of tracking, you document future and expected payments before they are paid to you. Make sure that you only track these payments once.
Use only one of these methods to track your money from clients. Going back and forth will confuse you and make bookkeeping even more difficult. The most common with sole proprietors is the cash basis accounting tracking.
What Are Your Expenses?
The two types of tracking methods can be utilized for your expense report, too. Expenses can pertain to anything that you have to buy for your business. Supplies such as pens, paper, computer, printer, and even the office itself can all be considered an expense. Some other possible expenses could be:
- Advertising materials
- Any health insurance you purchased
- Software
- Internet
- Phone bill
- Travel and/or mileage
Determining if your freelancing website design business has earned enough money for a single year is directly related to the expense report you compile.
Pay Your Taxes
A drawback for freelancers is tax season. Filing for taxes isn’t fun for anyone, but it is especially trying for freelancers. For firsttime sole business owners, it can be an even bigger task. It’s likely that they have had an employer before, which eventually produced a paycheck. That paycheck automatically deducted the required taxes from state and government. When you are a freelancer, you have to deduct that yourself from any earnings you make.
There is an annual option, similar to how employees file or you can pay a quarterly tax. The quarterly option will save from having to pay a huge lump amount at one time.
Conclusion
Making sure your records are in order is the least glamorous side to freelancing, but it is a necessary one if you want the highest success rates. Try to get advice from other freelancers or hire a bookkeeper until you feel more comfortable doing it on your own.