How YNAB Makes Tax Time Simpler for Freelancers

MeKenna and Kat are each on the Help group for YNAB. Along with working for YNAB, they’re each aspect hustlers: freelance lighting designer (MeKenna) and freelance actor/performer (Kat). Put their options for managing aspect hustle bills and revenue in YNAB into motion in your individual finances to remove a few of that tax-time stress!

No matter what sort of work your aspect hustle entails, discovering the best processes, instruments, or programs 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 revenue with out YNAB.

One factor we do have in frequent is that every one our aspect hustle revenue and bills go into and are available out of our private accounts. This works greatest for our private setup, however you probably have a separate checking account for your enterprise, a separate enterprise finances is the way in which to go! Take a look at this hyperlink to our Small Enterprise touchdown web page with plenty of sources on organising a separate enterprise finances.

The way to Handle Tax-Deductible Bills

Possibility One: Tagging

Kat’s method:

I took the record of deductible expense classes I received from my accountant and made word of those that apply to me. Once I spend cash for the enterprise, I add my enterprise tag for the yr (#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 cut up the transaction and add the knowledge solely to the memo discipline of the corresponding cut up. For recurring deductible bills (subscriptions, cellphone payments, and so on.), I guarantee that the tag is within the memo discipline of the scheduled repeating transaction for extra automation. When the brand new yr comes round and the January transaction drops in with the previous yr’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 should correspond with the spending class in my finances. I’d categorize a workshop underneath a enterprise class like Performing Bills, however I’d categorize a fancy dress piece I purchased to my common Clothes class. I’d need to fund that parking cost in my traditional Transportation class, however I need to make certain to put in writing it off on my taxes.

Possibility Two: Flagging

Now you could add customized names to flags, they’re additionally an amazing different to the aspect hustle tag. You should use one shade for all tax-deductible bills or you should use one for every sort of spending: pink could possibly be aspect hustle meals, yellow could possibly be aspect hustle journey, and so on. The one draw back of utilizing flags is you could’t flag a cut up portion of a transaction, solely the complete transaction. When you use cut up transactions in your tax-deductible spending, the tags within the memo discipline are a greater method to go.

Tax Preparation

When tax time comes round, I seek for every sort of spending and the tag – “#katwork22 coaching.” For the best method, I can choose all of the transactions and the Chosen Complete on the prime 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 varieties, 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.

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

What to do if one yr’s spending is distributed over a couple of finances

Possibly you determined to do a contemporary begin mid-year. Or perhaps you’re like Kat — you filed for divorce in the course of the yr and needed to create a brand new finances with new accounts in July! Irrespective of the explanation, generally having a couple of finances that holds transactions in a single yr is unavoidable. Right here’s the way to merge the info into one place!

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

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

Possibility Three: 1099 Class Group

MeKenna’s method:

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’ll be able to customise this to be your work-related classes, or maintain all of them contained inside your present finances setup like Kat does. Or some mixture of each!

Right here’s my setup:

Categorizing and Monitoring Facet Hustle Earnings

1099 revenue isn’t taxed till you file on the finish of the yr, which might trigger two challenges: not having sufficient put aside when it comes time to pay taxes and inflated revenue information in YNAB. If you’re each an worker and an impartial 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 method:

In my finances, I need to separate my 1099 revenue and the taxes that I take out of it, so I exploit a cut up transaction. The payee is the title of the revenue supply and I click on Cut up within the class discipline. I personally wish 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 internet revenue as a substitute of gross revenue for simply my 1099 pay. And it additionally helps me bear in mind to put aside cash for self-employment taxes!

Kat’s method:

Nearly all of my aspect hustle revenue is available in a number of annual checks. I’m not too anxious concerning the accuracy of my revenue information, so I categorize the complete influx quantity to Influx: Able to Assign. Then I assign a bit of it to the tax class to ensure 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 yr. As soon as I’ve totally funded that concentrate on for the yr, the remainder of the 1099 revenue is free to be assigned anyplace else.

When deciding the way to categorize your aspect hustle revenue, remember the fact that any cash inflowed right into a class gained’t present as revenue in studies. In case your purpose is in your revenue in YNAB to point out as internet revenue, splitting a number of the inflows to the taxes class will extra precisely mirror that internet revenue.

When you wish to see your revenue by revenue supply/consumer, you should use distinct payees for every and test the Earnings v. Expense report back to see how a lot you have been paid by every consumer.

Take a look at extra Quick Tax Time Prep Ideas with YNAB

If You Have Separate Enterprise Financial institution Accounts

As talked about above, you probably have separate accounts for your enterprise, you’ll need to add them to a separate enterprise finances, somewhat than to your private finances. That manner, you’ll be capable to separate private and enterprise revenue. You’ll additionally be capable to distinguish between enterprise and private bills extra simply.

We hope we’ve given you some methods to use to this yr’s finances (or in case you’re like a few of us, it’s possible you’ll return and tag all of final yr’s bills to make tax time simpler!)

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

Are you a freelancer who stumbled upon this put up whereas trying to find a greater method 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 you might want to take management of your monetary life and revel in much less cash stress. Strive it free of charge right this moment, no bank card required!