Bookkeeping is a very critical aspect of running a successful business whether you work as a freelancer, independent contractor, temporary worker, or perform work in the gig economy. But unless you're an expert on accounting and/or tax laws, it can be tough for most gig economy workers. Unfortunately, ignoring its importance isn't an option, and doing so can be detrimental to your profits or get you in hot water with the Internal Revenue Service, Social Security Administration, and your state taxing authority. To help avoid these, it's important to learn a few bookkeeping basics to be on the safe side.
Here are some top bookkeeping tips for savvy gig economy workers:
1. Keep Accurate Records
The importance of keeping accurate financial records for your business cannot be over-emphasized. Today, automated and online systems have made the recording and storing of financial records easy, fast and seamless. As a business owner, consider having a system (software - a personal favorite is QuickBooks) that ensures all your businesses’ financial operations are tracked, recorded and stored securely. This includes how cash was spent, whether cash or credit cards were used, whether employees were reimbursed, etc. Accurate records make it easy for the accountant or auditors to do their work when tax time comes or in the event of an audit.
2. Sort and Keep Track of All Receipts
If you see you're dealing with a lot of receipts and don't want to manually manage them then a receipt management software such as QuickBooks can help simplify. Sorting and keeping track of all receipts in a business seems tedious and time consuming, but if it's made a part of each transaction, it can save you a lot of headache in the future. If possible, categorize them by their specific deduction for easy recall when you need them.
3. Separate Your Business and Personal Expenses
Make sure to keep your business bank accounts separate from your personal checking or savings accounts. Commingling funds make it much harder to showcase your business expenses to the IRS if they ever ask.
4. Keep Track of Your Invoices
Occasionally, clients or vendors are late with payments, hurting your cash flow, and causing a disruption in your accounting. Consider hiring someone to keep track of your accounts receivable or use a monthly reporting software to smoothly monitor how much is outstanding and automatically send out reminders to late-payers.
5. Keep Good Records
It’s imperative you keep detailed records of all your business transactions. It's recommended you avoid using cash when making payments for your business because it can be very difficult to track these expenses. Consider using credit or debit cards, bank transfers, or online payments because you can view these transactions and show that all items purchased are business expenses to showcase to the IRS if they ever ask.
6. Track Your Expenses
Track your income and expenses systematically so you can estimate your quarterly taxes and file your year-end return as well as maximize your deductions and tax savings. Moreover, this will help you keep track of your cash flow so you can plan to pay your taxes on time.
Unless you ensure all income and expenses in your banking account are also in your bookkeeping system, you'll miss out on one of the best tax-reduction strategies available - increased deductions. Increased expenses maximize deductions and tax savings. Commit to reconciling bank and bookkeeping income and expenses at the end of each month to maximize your deductions and tax savings and reduce tax time stress.
Proper bookkeeping is an important aspect of any business. It’s always advisable that you consult a pro for expert advice and service to avoid making costly bookkeeping mistakes.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.