Presented by Paystrubmakr.com 
By John Wolf
As a contractor, managing finances can be overwhelming. The process can become confusing, from lost receipts to unpaid invoices, handling payments, and receiving cryptocurrency. However, simple measures can be put in place to manage freelance finances. This guide will assist in managing contractor finances effectively, reducing stress when filing tax returns.
Do you know if you are a freelancer or an employee?
To differentiate between the two, you are considered a freelancer if you work for yourself and can choose when and where you work. However, if your client requires you to work on-site during office hours, you would be classified as an employee. However, some situations may blur the line between the two, such as an independent contractor taking on longer in-house projects than a freelancer and working regular office hours on-site but not receiving employee benefits like paid vacation days and sick leave. To determine whether you are self-employed, look at how your client pays you – if you invoice them every month, you are self-employed. On the other hand, if you receive a set pay stub each pay period and receive benefits like paid vacation days, you are an employee. You are self-employed if you manage your own taxes, insurance, and overheads. How to Report and Pay Independent Contractor Taxes
Here are seven easy steps to ensure the accuracy of your financial records as a freelancer.
Keeping your self-employed finances organized can be challenging, especially when maintaining accurate records. It’s common to prioritize other tasks and neglect this crucial aspect. To avoid any last-minute stress during tax season, follow these steps to stay on top of your finances.
1. It is advisable to have a separate bank account for your business.
A business bank account is not compulsory as a freelancer, but it can significantly simplify your accounting. Separating your personal and business finances allows for easy tracking of payments and expenses. Instead of going through monthly statements.Best Free Business Checking Accounts For Freelancers And Gigs
2. Keep Every Expense on your books
You can opt for specific accounting software or a simple spreadsheet to keep track of your business expenses. It’s essential to record every payment you make related to your job and keep all receipts. Instead of ignoring them till the end of the tax year, file them every month. You can also use apps that help you log tickets by taking photos of your expenses and uploading them to a virtual shoebox to make tax filing easier.
The Best Android and iOS Apps for Generating Receipts
3. Keep the tax money for the tax-paying day
For freelancers, dealing with tax returns can be stressful, especially when faced with a box full of receipts. However, the second biggest concern is having the necessary funds saved to pay the tax bill. As a freelancer, it’s tempting to celebrate when you already deposit the full invoice amount into your bank account. Still, it’s important to immediately transfer a portion to a savings account for tax expenses. Many self-employed contractors follow a rule of thirds:
- Saving a third for taxes
- Leaving a third for business expenses
- Taking a third as salary or profit
That ensures a financial cushion for tax payments and helps avoid panic when faced with a large tax bill from the IRS.
4. Use a professional accountant for the Tax Return
You may prefer to handle everything yourself if you’re a financially struggling freelancer. However, hiring an accountant isn’t as expensive as you may think, mainly if you are already organized with your finances. It can save you a significant amount of money in the long run. Spending a few hundred dollars to ensure the accuracy of your tax return and taking full advantage of all allowable expenses is worth it. The more organized you are, the less time your accountant will spend, ultimately reducing costs. You can even write off the cost of hiring an accountant against your tax bill!
5. Do not save on insurance policies.
As a freelancer, you may not have access to employer-subsidized healthcare or a guaranteed monthly income to cover your expenses. Although insurance premiums can be costly, investing in health, life, and business insurance, at the very least, is essential. These types of insurance will protect you in emergencies and help safeguard your long-term finances as a freelancer.
6. Generate your online Pay Stubs for Yourself.
As a freelancer, it’s important to remember that you are essentially your own employer. Keeping track of your finances can be tricky, especially regarding taxes. That’s where pay stubs come in handy. Not only do they help you budget for tax expenses, but they also serve as a record of your income. Our online pay stubs make it easy to generate professional-looking pay stubs. Input your earnings, and let the system handle the calculations for you.
7. Keep yourself filling in the financial data in your books.
To effectively manage your freelance finances, consistency is critical. Schedule a regular weekly time to consolidate your expenses and income, chase late payments, and ensure your insurance and business expenses are paid. Treat this time as you would an essential client meeting by not moving it around or canceling it for other obligations. This practice saves you from last-minute panic during tax season and lets you stay on top of your business’s financial health. You can quickly assess how well your freelance business is doing and whether you need to pitch for more work to compensate for any shortfalls in your accounts.
Generate your perfect pay stub online.
Managing freelancers’ finances become more straightforward, with a clear view of your earnings. You can plan your expenses more accurately by tracking your average income over several months. A weekly or monthly pay stub consolidates all the necessary information about your income and taxes, providing a convenient overview. Take control of your finances today using our real paystubs maker to create your pay stubs. in our Real paystubs creators.
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