The 6 items you need for self-employed bookkeeping.
Bookkeeping for the self-employed can be confusing, this guide should help you out.
1. Create a bookkeeping ledger. A ledger provides a complete record of all accounts and financial transactions over the life of the company. It is important to keep your business money separate from any personal money even on day one. You can set up bookkeeping ledgers in Microsoft Excel, or there are many online versions including QuickBooks Self-Employed, or use an online accounting service like ALOEwerx to do this step for you.
2. Connecting accounts. If you choose to use QuickBooks Self-Employed (with or witho ut ALOEwerx services) it allows you to directly connect your accounts to your bookkeeping ledger. You can connect any credit cards or bank accounts that you would use for business. That way whenever you use a credit card or bank account it will automatically record in your ledger without manual entry. This is helpful in validating the accuracy of your books and saves time.
3. Personal vs. Business expenses. It’s important to distinguish between personal and business expenses. When you use a credit card or online payment with your bank account it is important to go into your books and label them either personal or business. QuickBooks Self-Employed will keep the transactions in a holding folder until you go in and review each transaction labeling them personal, business, or both. If using ALOEwerx the bookkeeper assigned to your business will take care of this for you. Keeping your business expenses separate will allow you to compare month to month business expenditures and see trends in your business.
4. Net Income. Just like your business expenses it is important to keep income earned from your business and personal money separate. You can use the same procedures as you do with expenses so you can match up your expenses on a job with the revenue it produced. Your net income will be the revenues you received from completing jobs minus the expenses incurred and, of course, any quarterly tax payments.
5. IRS schedule C reductions. In addition to comparing expenditures per month, by classifying business expenses you can start building up tax deductions. Certain business expenditures can be used as tax reductions on your IRS Schedule C. This can be confusing to most so having an accountant do it for you through ALOEwerx will make sure you are getting the most tax savings possible.
6. Quarterly Federal Tax Payments. When you’re self-employed you have to calculate your quarterly federal tax payments because you don’t have an employer taking it out of your paycheck. Online software can help with this but your time should be better spent. ALOEwerx will take care all your tax needs from just $35 a month.