Posted by The TaxAdvocate Group, LLC

Accounting & Bookkeeping for Small Businesses, Self-Employed & Freelancers

Accounting & Bookkeeping for Small  Businesses, Self-Employed & Freelancers

Becoming self-employed gives you the freedom to choose your path to work. But your aspirations can get out of hand if you don't keep your books in order. At tax time, missing receipts or incomplete records can undermine all the hard work for that year, especially if you get stung by Uncle Sam.

For this reason, careful and regular bookkeeping should be a priority for any self-employed, independent small business, or freelancer. In particular, home-based traders should ensure that they have a regular time each week to take care of their accounts. The house is full of distractions, and if you don't follow a strict schedule, you can easily forget to file away important documents. If you want your business to be successful, then you have to give your business every chance to be successful, which means finding a way to keep everything in order.

Let us look at some of the things you need to keep in mind, as a self-employed.

Save all financial documents.

Even if you run a moderately small business, you will certainly accumulate various expenses during the year. Since your business purchases reduce your taxable income, you can save a lot of money by claiming expenses. However, you must demonstrate that these expenses were essential to your business, which is why keeping all receipts should become a routine.

Freelancers can claim all kinds of work-related items, from laptops to vehicles, but only if the tax office can cross-reference it. In the event of an investigation, you may be required to provide other documents, such as bank statements and invoices. You must keep them at home or online for at least five years after the January 31 tax filing deadline. Make sure to archive them in chronological order for easy access at any time.

Separate personal and professional properties

Working for yourself can be difficult if you don't check out which finances are for the business and personal. To avoid confusion, you should open a separate account for business transactions. Even if you only increase your main income through self-employment, the differentiation will make your life a lot easier.

Alternatively, it allows you to calculate exactly how much money is tied to your business at any given time. This makes budgeting and costing a lot easier and means you're less likely to have financial problems. Plus, with all of the business transactions done through this account, you won't have a problem deciding in retrospect which expenses have been critical to your business.

Keep track of your income.

Today, online and mobile banking make it possible to check your balance at any time. But it's always worth keeping track of all of your accounts so that you know exactly where the money is coming from. By keeping copies of all your transactions, you can compare them to the money flowing into your account to ensure there are no discrepancies. Invoicing software is available online for this purpose, so you don't have to worry about backing up your payment information at home or in the office. Through routine checks, you can be sure that you will receive every penny you earn, and you can easily report your annual income on tax returns.

Get into a routine

Despite more flexible working hours, it can still be difficult for freelancers and self-employed to tackle everything in a busy week. When tax season arrives, you may not be as prepared as you initially thought. The tax return can be difficult to complete if there are no necessary documents at hand and even more difficult if there is no discernible order to it. To resolve this issue, you must start archiving documents from the first day of the exercise.

It is up to you if you choose to do most of the work online, but you still need to spend 20-30 minutes a week to make sure everything is okay. There is nothing worse than looking for documents three days before the deadline, so set a bookkeeping schedule and stick to it.

Bookkeeping for self-employed 

Self-employed workers must have bookkeeping records in the form of a monthly cumulative statement of income and expenses, including the following supporting documents:

  • Bank statements

  • Checks

  • Commercial expenses received

  • Deposit receipts and, in general, any document that may represent a business expense.

  • Sales invoices

This evidence must be archived and kept for six years for possible account inspection purposes.

Why it's important to keep good records.

Regular and efficient updating of your books is essential for any business owner. Proper bookkeeping is not only a legal requirement that allows you to make fair and timely payments but also allows you to:

  • Avoid making mistakes and losing documentation

  • Ensure good business management and clear decision making

  • Immediately detect gaps and disparities

  • Know the performance of your business in real-time and in details

  • Monitor cash flow (liquidity)

Verification of accounting records with bank reconciliation

Bank reconciliation, which usually takes place at the end of the month, is used to ensure that the company's books match its bank statements. Accounting software allows you to import bank statements and verify line by line that transactions have been correctly recorded in the general ledger. Bank reconciliation is not obligatory but makes it possible to check the accounting data's consistency and ensure the reliability of the bank statement.

Bottom Line

To get the best practices in your small business, it is essential to work daily and regular accounting. Remember that bookkeeping is all about recording the day-to-day transactions of your business. In contrast, accounting is an assessment of the books and general financial condition and is primarily used to better understand your business and advisory activities. Accounting simply controls your finances, and accounting is analysis.

In the past and until now, companies have hired dedicated accountants and bookkeepers. However, with the advent of online business management software, people are taking accounting and bookkeeping into their own hands. 



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