The first step for many brand-new small business owners is to enter all of their bookkeeping data onto an Excel spreadsheet. Excel data entry requires manual effort, which increases the likelihood of human error. To manage your books, the software will automatically import your invoices, payments received, payments returned, and expenses.
Be Transparent with your Income and Expenses
According to U.S. labor law, independent contractors are not employees—they are self-employed and do work for clients on a contract basis. If you do work as an independent contractor, you are technically working for yourself. Most people who call themselves “freelancers” are considered to be independent contractors by the IRS—the two terms are basically interchangeable.
What Is Accounting Software for Independent Contractors?
- You’ll find all the assistance you need in the knowledge base, but FreeAgent has a lot more help to offer.
- Having separate accounts gives a more straightforward visual of how much money you have linked to your business at any time.
- It’s an accountant and accounting app in one with two packages available.
- As a general rule, independent contractors should save anywhere from percent of their income for tax purposes.
- The cash flow section and the tax features are a testimony to this—but let’s start at the beginning.
You will want to open a bank account specifically as an independent contractor business. This will help you separate your financial status from your businesses. In the case of an audit, it is helpful to have everything separate, primarily if you classify yourself as a business.
Use Accounting Software
However, it can be challenging to keep track of and record these expenses. For a smarter solution to these problems, you can use expense tracking software. Our guide, Expense Tracking for Freelancers, will provide you with more insight into this. Having a clear picture of their financial figures will help any independent contractor understand their business better. They will be able to pay their taxes to the IRS with more accuracy.
But these cost more than some competitors, so if you process a lot of payments, you may end up paying more with Wave’s “free” accounting than you would with a paid app. Finally, Zoho Books doesn’t sync with as many third-party apps as competitors. While you can sync other Zoho products to your Zoho Books account, you don’t have many ecommerce or inventory management options.
The 7 Best Accounting Software for Freelancers in 2023
Everything can be too alluring to just brush it under the rug to get paid to your own account. Even if there are some immediate advantages, like avoiding having to pay taxes on that money, getting discovered during an audit is not worthwhile. Paying taxes and having precise estimates of your upcoming tax obligations are quite beneficial.
As an independent contractor, your success hinges on your craftsmanship and ability to stay organized and on top of your finances. While you may excel at delivering projects, bookkeeping can feel overwhelming. However, accurate, proactive financial management isn’t just about avoiding headaches; it provides valuable insights that fuel your growth. Other features of note are sales tax handling (if you have to charge it) and a deep accounting section with your entire chart of accounts. And when you want a big picture view, head to the Reports section, where you can create your custom reports in addition to the five that are already in place.
While it may cost more upfront, it will save you money in the long run. Detailed mileage reports can be generated to track and claim mileage deductions. All receipts and documents are stored in the cloud, so they’re available anywhere, which reduces the risk of lost paperwork.
Check out the Small Business Association’s list of Business License and Permits to find out which licenses and permits you may need to do business in your state and industry. Clients will usually ask you to sign a written contract before you start doing work for them (that’s where the “contractor” part comes from). Business owners can create custom tags and categories to suit their bookkeeping needs so they have tailored financial oversight. No matter how successful you currently feel as you are an independent contractor, it would be beneficial if you looked ahead.
If your bookkeeping is organized, you will be less likely to have mistakes on your next tax returns and filings and will be less likely to be red-flagged by the taxman. Reconciling your bank account can make the day-to-day business of freelancing easier and prepare you for tax season. A strict budget plan will help you develop healthy financial habits as a freelancer. This smart money management will help your business grow in the long run. Independent contractors need to be thinking of bank account reconciliation.
