The IRS requires independent contractors to pay self-employment taxes. Currently, that means you will pay 15.3 percent for social security, 12.4 percent for Medicare, and 2.9 percent for both. The downside is that your employers won’t contribute to your 401(k), workers’ compensation, bonuses, unemployment taxes, payroll taxes, or health insurance (K). The Occupational Safety & Health Act (OSHA), the Fair Labor Standards Act (FLSA), and Title VII of the Civil Rights Act are just a few of the employee benefits you would forego.
There are many ways an independent contractor can track their income and expenses. How your friend does their bookkeeping might be different from how you do it. Most importantly, you must find a financial tracking system that works for you and stick to it. We narrowed them down to the top seven after reviewing the most popular ones. We chose these as our best accounting apps for independent contractors based on their functions, features, and integrations. We also looked at their pricing, number of versions offered, and whether they tailor the app to the specific needs of independent contractors.
Prepare Yourself for the Future
But if it costs us to get the stuff done, that comes out of OUR pockets, not theirs. Bringing in a CPA is also beneficial, especially during tax season. This is a good bookkeeping for independent contractors way to save some money when starting your business. Without a systematic bookkeeping system in place, there’s no way you would ever keep track of all of these items.
- Recording income and expenses is a key aspect of bookkeeping.
- As a general rule, independent contractors should save anywhere from percent of their income for tax purposes.
- To help manage your cash flow, track your income, create a budget, and establish a line of credit.
- Reconciling your bank accounts regularly can help ensure that your financial records are accurate and up-to-date.
This can be thought of as value being transferred between accounts. If you purchase a point of sale terminal, you transfer value from your cash account to your equipment account. Join over 1 million businesses scanning & organizing receipts, creating expense reports, and more—with Shoeboxed.
Organizing Your Financial Records
Independent contractors need to be thinking of bank account reconciliation. The practice of reconciliation will help you ensure that every transaction matches your accounts. It is also a great way to prepare yourself for tax season.
- Even Quickbooks requires you to use TurboTax for an extra fee if you want your taxes done in the same place.
- These are experienced and qualified professionals who are knowledgeable in accounting and financial record keeping.
- No matter how successful you feel as an independent contractor right now, it would help if you looked to the future.
- You’ll get monthly financial reports and can rest easy knowing the books are taken care of.
- If you are a contractor for hire, you can still get paid.
Some of these links will be sponsored, meaning I can receive some pay if you buy off them. You just have to have an idea what kind of expenses are like other expenses of the same kind. Again, a lot of people get freaked out because it’s hard to know all the IRS rules and all that. Doordash gives you no pay stub, neither do any of the others. If you use your car for deliveries, the portion of time you use the car is a reasonable and necessary part of running your business.
The EntreCourier’s Seven Rules to make Bookkeeping for Independent Contractors Easier
The first step for many brand-new small business owners is to enter all of their bookkeeping data onto an Excel spreadsheet. Excel data entry requires manual effort, which increases the likelihood of human error. To manage your books, the software will automatically import your invoices, payments received, payments returned, and expenses. Filing taxes as an independent contractor can be a complex process, but it is an important part of your bookkeeping efforts. It is important to accurately report your taxable income and any deductions and credits you are eligible for. It may also be helpful to consult with a tax professional to ensure that you are in compliance with all tax laws and regulations.
You will have to pay taxes and maintain your bookkeeping as a business. You probably chose to work independently because you wanted to escape the routine weekday or because you possessed a specialty that companies sought after. But as an independent contractor, you might not have understood how crucial it is to make sure you stay on top of your bookkeeping and accounting. Note that not all income is taxable, and some forms of income may be taxed differently.