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As a freelancer, you might think you don’t need to keep updated with your books. You’re not technically a business, so why would you have to do this? Well, you might not be a limited company, but you are treated fairly similarly to businesses. After all, you charge people for a service that you provide. The main difference is that you aren’t structured as a company and don’t have any employees.
Still, bookkeeping is a very important aspect of being a freelancer. If you haven’t started keeping a record of your comings and goings, here are some reasons that prove why you need to:
Understand how much you’re actually making
You set rates for your services, but have you ever considered how much money you’re actually making? It may feel like your job requires no expenses, but when you start tracking your finances, you realize that you genuinely spend a lot of money on your work. Bookkeeping lets you keep records of your comings and goings, so you can see how much you’re actually making. This lets you know if your freelance work is as profitable as it should be. From here, you can either decide to charge people more for your work or figure out how to lower your expenses.
Save money on tax returns
Filing your yearly tax return is always the worst part of freelancing. You understand that everyone needs to pay tax, but it feels as though you are paying way more than you should. With bookkeeping, you have the benefit of seeing how much money you’re spending and earning. It allows you to make a more accurate judgment when seeing your annual profit. Already, this could mean you save money on taxes because you’ve not earned as much as you thought. But, tracking your expenses can help you see how many of your payments are tax deductibles. Thus, you can further reduce your tax bill and save money legally.
Avoid issues like fraud
Following on from the above, if you don’t have accurate records of your accounts, you might end up committing fraud by accident. As noted by Sitkoff & Hanrahan, LLP, this would fall under the category of white-collar crime, and you will need a good defense attorney to prevent these charges. The problem is that, without accurate books, you don’t really know how much you’re making. So, you could put figures on your tax form that aren’t true – even if you think they are. If the IRS looks into this, they could flag you up for fraud as it seems like you’re making out that you made less money to avoid paying tax. Bookkeeping eliminates any of this by ensuring your records are always up to date and accurate.
In conclusion, bookkeeping is an essential part of the freelance game. You need to keep track of everything that you do. When you complete a job for a client, ensure there’s a record of it. When you pay for something to help you do your job, be sure it’s noted. There’s loads of bookkeeping software out there you can use to help you with this, so there’s no excuse!
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