Because of the flexibility that freelance work offers, some people are drawn towards freelance work or self-employment for the freedom of choosing their own work hours, clientele, and individual work processes. Transitioning to freelance work has its advantages but also presents new challenges and responsibilities, especially when considering taxes.
In the case of traditional employment, taxes are automatically withdrawn from one’s paycheck. But as a freelancer or self-employed person, you are held accountable for estimating your own tax payments every quarter rather than relying on your employer. Keeping accurate, detailed books are also imperative to building a successful and profitable business. Here are some basic tips one should know before entertaining freelance work or self-employment.
Keeping Track of Essential Financial Documents
In order to keep up with tax estimation, it is important to keep forms such as Form W-9, Schedule C (Form 1040), Schedule SE (Form 1040), Form 1040-ES, and 1099 forms. Such forms are required for a variety of things, from identifying your taxpayer identification number, reporting profits and losses, figuring self-employment taxes, estimating quarterly income taxes, and more.
Keeping track of your income and expenses is what keeps your business successful. All business-related expenses, from supplies to travel, should be tracked. Keep detailed receipts for any applicable claims you can make in your tax return. Additionally, keeping a detailed account of your income and expenses enables you to determine your net income.
As a self-employed person, you will not receive regular salaries or paychecks. In order to get paid in a timely manner, it’s important to follow up on your clients’ invoices to ensure sufficient cash flow. Send out invoices on time, and don’t hesitate when following up on late invoices. Keep hard copies of paid invoices as a back up for digital records.
With the freedom of freelancing work and self-employment comes extra responsibilities. If the work of tracking piles up, it may be worthwhile to seek out the assistance of a bookkeeper. If outsourcing your bookkeeping is out of your financial range, consider investing in software, such as QuickBooks. Our team at Bakersmith Bookkeeping Group can provide initial guidance and training in QuickBooks to get you started on the right track. Contact us today for more questions regarding finances or taxes!