Bookkeeping is the act of routinely recording and categorizing every financial transaction that is related to your business. Even if you consider your business very simple or a part-time endeavor, bookkeeping is still a must for tax purposes and for gathering information on how your business is doing.
Here are five bookkeeping tips every self-employed person should know.
Recording transactions using pen and paper is incredibly time-consuming and prone to human mistakes. Bookkeeping software has made this process much more efficient by minimizing manual entry, calculating without error, and making it easier to see how your business is doing based on your financial activity.
Other areas of accounting include payroll, invoicing, inventory, business reports, and more. Your business may not require every aspect of accounting but, whether you're billing a customer (invoicing) or checking in on how your business is doing (reports), you will probably need more than just online bookkeeping for your accounting needs.
Did you know the IRS doesn’t require you to save receipts for meals and certain other expenses as long as the total is under $75? It’s true—but you should keep them anyway. In fact, it’s a good idea to save anything that is financially linked to your business, including email correspondence. You can never give the IRS too much documentation, and if you do ever get audited, you’ll be thankful you kept those dinner receipts.
Whether you are an online seller in the jewelry business, a part-time freelance blogger, or you run a brick-and-mortar business, most of your bookkeeping categories will be the same. The important thing to remember is not to over-categorize. Keep it simple by using standard accounting categories, and create as few new categories as possible.
If you’re self-employed or own a small business, it’s costly and unnecessary to have a bookkeeper record every transaction for you; however, it is smart to have a tax professional look over your books monthly, quarterly or annually (especially if you’re just starting out). Bookkeepers, accountants or any tax professional with credentials are all qualified to help you.
If you want a bookkeeping method that’s easy and affordable, consider Outright. It’s online bookkeeping software that automates common bookkeeping tasks. Outright lets you see all of your bank accounts in one place, automatically sorts transactions into either an income or expense, and even categorizes them in a standard way the IRS expects.
Outright helps with other accounting tasks, too. It instantly shows how your business is doing with easy-to-understand charts, and it makes taxes easier by alerting you to how much you owe each quarter and when it’s due. It can even create and fill out your Schedule C tax form.