{"id":25913,"date":"2020-04-24T08:24:00","date_gmt":"2020-04-24T13:24:00","guid":{"rendered":"http:\/\/www.hostgator.com\/blog\/?p=25913"},"modified":"2020-04-20T14:58:47","modified_gmt":"2020-04-20T19:58:47","slug":"accounting-tips-freelancers","status":"publish","type":"post","link":"https:\/\/www.hostgator.com\/blog\/accounting-tips-freelancers\/","title":{"rendered":"10 Accounting Tips for Freelancers"},"content":{"rendered":"\n

As the world changes and a growing number of people are forced out of their former careers, many are exploring new ways of working. For some people, freelancing<\/a> is a great option. <\/p>\n\n\n\n

You can work from home, create your own schedule, and gain some control back over your career. But it brings unique challenges. One of the big ones is that you have to figure out the accounting side of things.<\/p>\n\n\n\n

Getting accounting right from day one can make a huge difference in how successful you are in your first year as a freelancer (and beyond). To help out those in the early stages of building a freelance business, I talked to my personal CPA (also my mom), Debra Hicks of Pattillo, Brown, & Hill<\/a>. Here are the most important ten steps to take to get off on the right foot. <\/p>\n\n\n\n

Note: a few of these tips are specific to freelancers working in the U.S. If you live in another country, find an accountant in your own country to walk you through anything specific to your nation\u2019s laws. <\/em><\/p>\n\n\n\n

1. Create a Separate Business Bank Account.<\/h2>\n\n\n\n

Creating a separate bank account for your freelance business is a quick and easy way to separate your personal and business finances. It makes your record keeping easier, and provides a little bit of extra liability to protect your personal assets from business losses. <\/p>\n\n\n\n

Consider also applying for a business credit card for the same reason. Logging all your business expenses into an accounting software or spreadsheet is much easier if they\u2019re all in one account.<\/p>\n\n\n\n

2. Set Aside at Least 30% for Taxes.\u00a0<\/h2>\n\n\n\n

Many a newbie freelancer has learned about the reality of freelance taxes too late. <\/p>\n\n\n\n

In addition to paying federal income tax based on how much you make, you also owe a self-employment tax<\/a>, and may owe additional state income taxes and sales tax besides. The last thing you want is to realize at the end of the year that you owe more than you saved.<\/p>\n\n\n\n

A good rule of thumb is to set aside around a third of each paycheck you receive for taxes (and make sure your rates are high enough that you\u2019re still making decent money after that). But it doesn\u2019t hurt to double-check that number with your accountant, as the percentage a freelancer owes varies based on a lot of factors. <\/p>\n\n\n\n

3. Find an Accountant.<\/h2>\n\n\n\n

Unless accounting\u2019s your specialty, this is a service worth paying for-at least in your first year. <\/p>\n\n\n\n

'Freelance taxes are complicated,'\u009d Debra explains. 'Hiring someone will help ensure you get all the deductions, which will likely save you money.'\u009d And since tax laws vary by state, a local accountant will instruct you in the regional details you need to be aware of, such as whether you need to charge sales tax or if your state has an income tax. <\/p>\n\n\n\n

If you\u2019re the DIY type and don\u2019t want to be dependent on a hired accountant long term, you may be able to find one willing to train you in the first year, so you know how to handle things on your own beyond that. But at least to start, the investment in a good accountant is worth the cost. <\/p>\n\n\n\n

The best place to start looking for an accountant is to ask around for referrals. Someone a close friend or colleague trusts is usually a good choice. <\/p>\n\n\n\n

If you\u2019re not able to find someone that way, look up your state\u2019s society of accountants. In your search, pay attention to the distinction between CPAs and bookkeepers. A CPA (which stands for certified public accountant) is beholden to an oversight body. They must meet established educational standards each year to maintain their status, and there\u2019s a system for accountability in place for CPAs that provides more protection to their clients.<\/p>\n\n\n\n

Bookkeepers are often skilled as well, but they lack the level of oversight and protection you get with a CPA. You\u2019ll pay less for their help, but you\u2019re taking a risk. 'Be leery of just picking a name from a phone book,'\u009d Debra warns. If you go with a bookkeeper, it\u2019s best to find someone based on referrals, or that you can track down trustworthy references for. <\/p>\n\n\n\n

Pro Tip: <\/em>Don\u2019t wait until tax time to hire an accountant. <\/strong>Pay them upfront to provide you some basic training on how to get set up with good record keeping. Most CPAs charge hourly, so if you come to them at the end of the year with no good records and a mess of receipts they have to sort through, you\u2019ll end up paying more. Organized records that provide a simple summary of income and expenses mean you pay less. <\/p>\n\n\n\n

4. Pay Quarterly Taxes.<\/h2>\n\n\n\n

Freelancers may be required to pay taxes quarterly<\/a> to avoid penalties. Mark your calendar to make payments on:<\/p>\n\n\n\n