Wednesday, March 22, 2023
HomeBudgetHow YNAB Makes Tax Time Simpler for Freelancers

How YNAB Makes Tax Time Simpler for Freelancers

MeKenna and Kat are each on the Help crew for YNAB. Along with working for YNAB, they’re each aspect hustlers: freelance lighting designer (MeKenna) and freelance actor/performer (Kat). Put their recommendations for managing aspect hustle bills and earnings in YNAB into motion in your personal funds to get rid of a few of that tax-time stress!

No matter what sort of work your aspect hustle entails, discovering the best processes, instruments, or techniques to assist could make life an entire lot simpler. Whereas we each handle our aspect hustles a bit in another way in our budgets, we agree that we couldn’t think about managing the bills and earnings with out YNAB.

One factor we do have in frequent is that each one our aspect hustle earnings and bills go into and are available out of our private accounts. This works finest for our private setup, however you probably have a separate checking account for your corporation, a separate enterprise funds is the best way to go! Try this hyperlink to our Small Enterprise touchdown web page with numerous sources on organising a separate enterprise funds.

The way to Handle Tax-Deductible Bills

Choice One: Tagging

Kat’s strategy:

I took the record of deductible expense classes I acquired from my accountant and made notice of those that apply to me. Once I spend cash for the enterprise, I add my enterprise tag for the 12 months (#katwork22) and the spending sort to the memo discipline. For me, that’s subscriptions, coaching, transportation, meals, provides, costumes, and journey.

I add the tag and the spending sort to the memo discipline of any deductible spending. If I purchased a number of issues in that buy and solely a few of them are deductible, I’ll break up the transaction and add the knowledge solely to the memo discipline of the corresponding break up. For recurring deductible bills (subscriptions, cellphone payments, and so forth.), I be sure that the tag is within the memo discipline of the scheduled repeating transaction for extra automation. When the brand new 12 months comes round and the January transaction drops in with the previous 12 months’s date, I simply have to recollect to replace each the January model of the transaction and the repeating future transaction with the brand new date tag!

The gorgeous half about this for me is that the tax class doesn’t need to correspond with the spending class in my funds. I would categorize a workshop underneath a enterprise class like Performing Bills, however I would categorize a fancy dress piece I purchased to my common Clothes class. I would wish to fund that parking cost in my common Transportation class, however I wish to be sure that to jot down it off on my taxes.

Choice Two: Flagging

Now which you could add customized names to flags, they’re additionally an important different to the aspect hustle tag. You should utilize one shade for all tax-deductible bills or you should utilize one for every sort of spending: purple may very well be aspect hustle meals, yellow may very well be aspect hustle journey, and so forth. The one draw back of utilizing flags is which you could’t flag a break up portion of a transaction, solely the complete transaction. If you happen to use break up transactions in your tax-deductible spending, the tags within the memo discipline are a greater solution to go.

Tax Preparation

When tax time comes round, I seek for every sort of spending and the tag – “#katwork22 coaching.” For the best strategy, I can choose all of the transactions and the Chosen Whole on the high is what I spent in that class. I can add that to the spreadsheet I share with my accountant. 

Alternatively, I can seek for simply the enterprise tag (in my case, #katwork22), choose all of the transactions in all these spending sorts, and Export Chosen Transactions to a spreadsheet app. From there, I can type by the completely different tax deductible classes and ship that alongside to my accountant.

If you happen to select to make use of flags, you may seek for flags and observe the identical directions as above!

What to do if one 12 months’s spending is distributed over a couple of funds

Perhaps you determined to do a recent begin mid-year. Or perhaps you’re like Kat — you filed for divorce in the midst of the 12 months and needed to create a brand new funds with new accounts in July! Regardless of the explanation, generally having a couple of funds that holds transactions in a single 12 months is unavoidable. Right here’s learn how to merge the info into one place!

First, you’ll go to All Accounts and seek for your corporation tag. Choose all of the transactions for that tax 12 months and use Export Chosen Transactions to create a CSV file of simply these transactions. Do the identical factor within the different funds(s). Once you’re completed, you’ll have two or extra CSV information with the related spending transactions in them. 

You may decide one file to be the principle file. Subsequent, open the opposite one, copy all of the transactions (with out the header) from that funds after which paste all of the transactions into the principle file. Repeat till all transactions for that 12 months are in a single file. From there, you may delete columns you don’t want, type and filter as desired.

Choice Three: 1099 Class Group

MeKenna’s strategy:

I’ve a class group referred to as “1099” and within it are all 1099-related classes.  Taxes, Tithing, Dropbox, Adobe Suite Subscriptions, Tech & Gear, Journey for Work, Tax Accountant, Reimbursements, and Miscellaneous. You may customise this to be your work-related classes, or hold all of them contained inside your present funds setup like Kat does. Or some mixture of each!

Right here’s my setup:

Manage your entire tax-deductible bills in YNAB

Categorizing and Monitoring Aspect Hustle Earnings

1099 earnings isn’t taxed till you file on the finish of the 12 months, which might trigger two challenges: not having sufficient put aside when it comes time to pay taxes and inflated earnings knowledge in YNAB. In case you are each an worker and an unbiased contractor, the paychecks out of your employer are the post-tax quantity however your aspect hustle funds are the pre-taxed quantity. Kat and MeKenna have two completely different approaches to those challenges!

MeKenna’s strategy:

In my funds, I wish to separate my 1099 earnings and the taxes that I take out of it, so I exploit a break up transaction. The payee is the title of the earnings supply and I click on Break up within the class discipline. I personally prefer to put aside 20% for taxes, so if the bill is for $2,000, I categorize $1,600  as “Influx: Prepared To Assign” and $400 to my Tax class.

That manner, my Earnings v. Expense report exhibits my approximate web earnings as a substitute of gross earnings for simply my 1099 pay. And it additionally helps me keep in mind to put aside cash for self-employment taxes!

Kat’s strategy: 

The vast majority of my aspect hustle earnings is available in a number of annual checks. I’m not too apprehensive in regards to the accuracy of my earnings knowledge, so I categorize the complete influx quantity to Influx: Able to Assign. Then I assign a piece of it to the tax class to verify I’ve some set-aside. I set a Goal on my tax class so I put aside about the identical quantity I needed to pay final 12 months. As soon as I’ve totally funded that focus on for the 12 months, the remainder of the 1099 earnings is free to be assigned anyplace else.

When deciding learn how to categorize your aspect hustle earnings, remember that any cash inflowed right into a class gained’t present as earnings in studies. In case your purpose is in your earnings in YNAB to indicate as web earnings, splitting a few of the inflows to the taxes class will extra precisely replicate that web earnings.

If you happen to prefer to see your earnings by earnings supply/consumer, you should utilize distinct payees for every and examine the Earnings v. Expense report back to see how a lot you had been paid by every consumer.

Try extra Quick Tax Time Prep Suggestions with YNAB

If You Have Separate Enterprise Financial institution Accounts

As talked about above, you probably have separate accounts for your corporation, you’ll wish to add them to a separate enterprise funds, moderately than to your private funds. That manner, you’ll have the ability to separate private and enterprise earnings. You’ll additionally have the ability to distinguish between enterprise and private bills extra simply.

We hope we’ve given you some methods to use to this 12 months’s funds (or should you’re like a few of us, you might return and tag all of final 12 months’s bills to make tax time simpler!)

Don’t hesitate to attain out to the Help crew you probably have any questions on setting this up in your funds!

Are you a freelancer who stumbled upon this submit whereas looking for a greater solution to handle your funds? With 4 Guidelines, a sturdy library of free sources, and an award-winning cash administration app, YNAB has the whole lot it’s essential take management of your monetary life and revel in much less cash stress. Attempt it totally free as we speak, no bank card required!



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