Smart Accounting Practices for Independent Contractors

It is important to keep receipts and invoices organized and easily accessible for reference. In addition to providing better tracking capabilities, monthly bookkeeping for independent contractors helps you more efficiently review your income and estimate upcoming tax payments. Also, monthly bookkeeping allows you to do this on a more regular basis; you won’t be surprised by anything because your financial record keeping is streamlined. Bookkeeping refers to the process of recording and maintaining financial transactions in an organized manner.

Can I use QuickBooks if I am self-employed?

QuickBooks Self-Employed helps you record your self-employed income and expenses, track mileage, and prepare your Schedule C tax form. Here's an overview of everything you can do, how to get set up, and how QuickBooks tracks everything throughout the year.

With monthly bookkeeping, you won’t be surprised by the taxes you owe and can enact a payment plan that works best for your situation. Additionally, you can save money on tax payments through monthly tracking of deductions bookkeeping for independent contractors and business expenses. There are free and paid versions, and typically the paid versions have more features. Some apps offer free 30-day trial periods and others offer discounts for paying annually in advance.

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They aren’t considered employees of the company, so independent contractors retain different benefits that employees usually don’t have. This includes setting their own hours and determining where they work. When trying to track business expenses and income, it’s best if you have a separate bank account set up for your business as an independent contractor. You’ll get monthly financial reports and can rest easy knowing the books are taken care of.

  • There are more factors to consider before tax season, and hiring a bookkeeper for monthly bookkeeping is a way to manage these various factors.
  • Since independent contractors do not automatically have taxes withheld from their paychecks, they must pay self-employment taxes on a quarterly basis.
  • That’s one of the reasons why bookkeeping for contractors is more complex than bookkeeping for employees.

Working with a professional accountant and bookkeeper will help to eliminate much of the stress that comes from being a business owner and helps you stay on track financially. In addition, keeping your books organized will put you in better position if you ever apply for a business loan. This means the business owner is responsible for withholding and reporting a certain portion of the wages earned by the employee. These withholding’s are the employees tax liability, social security, medicare and unemployment taxes in each pay check. At the end of the year, the total taxable income must be proven with the W-2 form filed before the annual deadline in April. So there are quite a few differences between independent contractors and hired employees.

Importance of Bookkeeping for Independent Contractors

It offers a range of services, including invoicing, accounting, expense tracking, tax preparation, and financial reporting. With Lunafi, you can easily manage your finances from anywhere and at any time, as all your financial information is stored in the cloud. In addition to providing you with an understanding of what qualifies as a business vs. personal expense, monthly bookkeeping for contractors helps you better track customer bills and payments. It’s easy for things to get lost in the complexity of daily work, especially if you’re working as an independent contractor full time. And what is bookkeeping if not tracking all these complexities in an organized, easy-to-understand way? Monthly bookkeeping for contractors ensures you’re paying the right amount to the right people at the right time – and that your customers are doing the same for you.

Do I need QuickBooks as a contractor?

QuickBooks can and should be used for all your construction accounting needs. Some of the many ways to maximize this software are sending invoices, tracking income, accepting payments, running payroll and tracking time on-the-go.

The manual labor of entering data into Excel is likely to bring mistakes. The software will automatically take your invoices, payments received, payments returned, and expenses to organize your books. Wave Accounting is a free accounting app that works both online and on your smartphone. While there are charges for some extra features like payment processing, payroll, and bookkeeping support, the free starting price point makes it a winner for many independent contractors. Contractors enjoy the autonomy and flexibility that come with being classified as an independent entity separate from the business they’re doing work for.

Wave Accounting

Proper bookkeeping will help you set up financial reports that let your plan and make educated decisions for the future. People who work routine 8-5 jobs for a company are classified as an employee. The business they work for will withhold and report a portion of the employee’s wages. A percentage of each check is withheld to fund unemployment, social security, Medicare, and tax liability. Each year, all employee taxable income is proven on a W-2 form and filed to the IRS.

  • Reconciling bank accounts is critical in staying on top of your bookkeeping.
  • Independent contractors need to be thinking of bank account reconciliation.
  • Even Quickbooks requires you to use TurboTax for an extra fee if you want your taxes done in the same place.
  • As such, many who work as independent contractors juggle the different challenges and opportunities of their work themselves.
  • That’s why it’s crucial to keep business and personal expenses separate by opening separate bank accounts.
  • This includes understanding the types of taxes you are responsible for, such as income and self-employment taxes.

Keeping accurate financial records is the best way to account for your tax liability. Failing to file expenses and profit will ultimately lead you to be audited by the IRS. Though this may seem obvious at first glance, separating your personal expenses and business expenses as a contractor can get complicated quickly. This separation goes beyond using one card for business expenses and another for personal expenses. As an independent contractor, you are required to track your deductions and estimate along the way how much you’ll need to pay in taxes. Additionally, independent contractors don’t have to go through as much training and onboarding as payrolled employees.

Turn business receipts into data & deductibles

If you are not diligent in separating your personal and business bank accounts, you might get paid directly to your personal account. The less-expensive Essential plan offers monthly bookkeeping and a dedicated bookkeeping team while the more expensive Premium plan also offers income tax support. Zoho made our pick as best accounting software for part-time contractors because its basic, free version provides everything most contractors will need–all at no cost.

bookkeeping for independent contractors

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