If you run your own business, work as a freelancer or do gig work, you need to keep good records. Whether you are a carpenter, do web design on the side or drive for a ride share service, you need to keep track of your expenses and income so you know how well your business is doing. And so when tax time rolls around, you can stay out of tax trouble. Here are some record keeping tips that will simplify your accounting. And if you need more help with your personal or business accounting, contact CPA Services of Florida.
Tip #1: Open a Separate Bank Account
For any type of business, whether you have incorporated your business or not, you should have a separate bank account. It’s best to deposit your business earnings and pay your business expenses separate from your personal account. If you have an employer identification number (EIN), you can use that information to open the account. If not, you can still open a separate account to deposit your payments and pay any business-related expenses.
Tip #2: Download or Print Payment Records
You may be paid in several different ways, such as cash, checks, direct payments from clients, electronic bank transfers or automated clearinghouse (ACH) transfers to your bank account. Or you may receive payment through third-party apps, such as PayPal, Stripe, Payoneer, Venmo or Zelle. Keeping it all straight can be a major challenge.
Most major payment providers make it easy to print records or find out exactly how much their members received during a given time period. If you want to see how much money you’ve made or how much tax you might owe, you can download and save or print out payment reports from every provider you receive income from.
These reports should be part of your own carefully kept records. If you are unsure how much you have received via ACH, you can check with your bank or request a written report.
CPA Services of Florida can consult with you on record keeping strategies and help you determine what you need to keep.
Tip #3: Maintain Records of Your Clients and Vendors
During the course of a single year, business owners, freelancers and gig workers may work for many different companies and people and therefore will receive payments from many sources. Those payers should maintain their own records and send out 1099s for tax purposes, but that is not guaranteed.
Don’t depend on those who hire and pay you to send you 1099s for your tax return. Keep your own records, then check off each 1099 as it comes in. Most people don’t realize this, but if you earned income and do not receive a 1099, it is your responsibility to follow up and get the proper paperwork. You are the one that will end up in trouble with the IRS if you have unreported income, so make your life easier by tracking your income and keeping contact information from everyone you worked for, even if they were only a one-time client.
Tip #4: Keep a Spreadsheet of your Income and Expenses
It can be difficult to track your income from freelance jobs and gig work, but a spreadsheet will make it easier. Avoid underreporting your income and the tax penalties that could bring, by setting up a spreadsheet. Record your income as it comes in, and also your mileage and expenses as you spend money for your business.
This is an important record keeping tip. Keeping a running tally of your income and expenses serves a number of different purposes. For one thing, it will help you or your accountant determine how much you owe for your required quarterly income tax payments. It will also help you understand how your business is doing, making it easier for you to know if you need to ramp up your efforts or hire help.
Tip #5: Document Your Home Office – Even If It’s Your Car
You may be eligible for income tax deductions, including a write-off for your home office. If you operate your business out of your home or use it to find gig clients, you may be able to deduct the expenses to upkeep that portion of your home. This may include your utility bills, rent or mortgage and other applicable expenses. If you drive for a ride share service or frequently drive as part of your business, your mileage should be deductible. Your car lease or vehicle expense may even be deductible.
There are strict regulations on what qualifies as a home office. Proper documentation can make the difference between a deduction that is allowed or disallowed. You must use your home office solely for your business, and you must keep careful records to avoid problems with the IRS.
Record keeping tips for your home office means measuring the space, so you can calculate the percentage it is of the total square footage of your home. You should also photograph the space, so you can show those images to the IRS if they question the deduction.
Tip #6: Keep Your Receipts for Tax Deductions
You may be eligible for additional tax deductions, including write-offs for internet access, office supplies and other expenses. But you must have documentation of those expenses.
Save your receipts and file, scan or photograph them and keep them in a safe place. This could be a folder on your hard drive – make sure you back up your hard drive! – or on the cloud. Or it could be a combination of the two.
CPA Services of Florida
CPA Services of Florida offers proactive accounting services to steer you through bookkeeping, tax planning and preparation, financial statements audits and more. We have more than 30 years of experience in accounting and small business consulting, and we are here to help with your business and personal accounting needs. Call us for tax help today at 941-924-1120.
See also:
New Business Accounting: What You Need to Know When You Start a Business