Tuesday, February 7, 2023

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How Freelancers and Independent Contractors Accounting Should Handle Them

We live in a gig economy and many people have started to work independently as contractors or freelancers. While this approach offers more opportunities and ensures you have a more reliable income than simply being unemployed, it can also be difficult to manage your accounts. Most freelancers and independent contractors don’t know how to keep track of all of their business expenses and get the tax credits due. It quickly becomes frustrating to handle independent contractor accounting, especially if you’ve never done it before. Filing taxes as a salaried individual is much easier.

Here’s a look at some ways in which independent contractor and freelancer can manage their business expenses and track them effectively.

  1. Organizing into Categories

The first thing you need to do is organize all of your business expenses into different categories. For example, when you’re a chef and are buying produce to make food, you are getting inventory. In contrast, the kitchen tools and utensils will be considered materials and supplies. An artist buying paints, brushes, paint thinners, and other such items are investing in materials and supplies as well.

Paying a salary or wage falls under the payroll and wages category. Hiring someone to train your employees can be included in the training or professional education category. Once everything is organized into categories, it is easier to keep track of expenses and then file taxes accordingly.

  1. Determine What Can Be Considered Business Expenses

 Many people forget to account for all business expenses and get less tax credit than they should. For example, if you work from home, you can deduct the energy expenses, work-related internet bills, and other such expenses from your income. It is a good idea to work with a professional for independent contractor accounting. They will be able to create a list of deductibles you can use to save money on tax.

Sometimes, businesses can deduct resources invested into research and development as well. For example, if you need to conduct surveys, experiments, and look at big data to keep your business running, you can deduce those expenses as well. A good account will find all deductibles applicable to your case and recommend how to file taxes based on that.

  1. Loans for Independent Contractors 

Many contractors and business owners take on loans to run their companies. These loans are essential business expenses and can be deducted from your taxable income. Some loans will get you tax credits as well, depending on how and why you use the money. Make sure you include loans for independent contractors in your tax filing. It is possible to get complete forgiveness for loans like PPP, which is designed to help businesses stay afloat and people stay employed during the pandemic.

Make sure you use the funds from the loans for business-related expenses. For example, if you take a loan to turn a vacant room in your home into an office. It can be counted as a business expense. If you take a loan to renovate your entire house and the office is a part of it, you will only be able to deduct the cost of renovating the office and not the entire loan.

  1. Marketing and Promotion Costs

Marketing and promotion costs should also be included in business expenses. For example, if you visit a convention and network for a few hours to get business contacts. You can include the costs incurred in your business expenses. If you sponsor a local sports team to play under your banner to promote your business, it can also be included in business expenses.

Many companies don’t claim small marketing expenses and miss out on savings. Whether you run an intense digital marketing campaign or invest in offline programs, add the related costs to your business expenses.

Keeping track of all business expenses can help you avoid legal trouble down the lane as well.

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