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 facet hustlers: freelance lighting designer (MeKenna) and freelance actor/performer (Kat). Put their options for managing facet hustle bills and revenue in YNAB into motion in your individual finances to get rid of a few of that tax-time stress!

No matter what sort of work your facet hustle entails, discovering the fitting processes, instruments, or techniques to assist could make life an entire lot simpler. Whereas we each handle our facet hustles a bit otherwise 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 facet hustle revenue and bills go into and are available out of our private accounts. This works finest for our private setup, however when you’ve got a separate checking account for your online business, a separate enterprise finances is the way in which to go! Try this hyperlink to our Small Enterprise touchdown web page with plenty of assets on organising a separate enterprise finances.

Tips on how to Handle Tax-Deductible Bills

Choice One: Tagging

Kat’s strategy:

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

I add the tag and the spending sort to the memo subject 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 data solely to the memo subject of the corresponding cut up. For recurring deductible bills (subscriptions, mobile phone payments, and so on.), I make it possible for the tag is within the memo subject 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 should correspond with the spending class in my finances. I’d categorize a workshop below a enterprise class like Performing Bills, however I’d categorize a dressing up piece I purchased to my common Clothes class. I’d wish to fund that parking cost in my standard Transportation class, however I wish to be certain that to jot down it off on my taxes.

Choice Two: Flagging

Now which you can add customized names to flags, they’re additionally an amazing various to the facet hustle tag. You need to use one shade for all tax-deductible bills or you need to use one for every sort of spending: pink might be facet hustle meals, yellow might be facet hustle journey, and so on. The one draw back of utilizing flags is which you can’t flag a cut up portion of a transaction, solely the total transaction. In case you use cut up transactions on your tax-deductible spending, the tags within the memo subject are a greater technique to go.

Tax Preparation

When tax time comes round, I seek for every sort of spending and the tag – “#katwork22 coaching.” For the only 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.

In case you select to make use of flags, you’ll be able to 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 finances

Perhaps you determined to do a recent begin mid-year. Or possibly you’re like Kat — you filed for divorce in the course of the 12 months 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 12 months is unavoidable. Right here’s the right way to merge the info into one place!

First, you’ll go to All Accounts and seek for your online business 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 finances(s). Whenever you’re completed, you’ll have two or extra CSV information with the related spending transactions in them.

You may choose one file to be the primary 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 primary file. Repeat till all transactions for that 12 months are in a single file. From there, you’ll be able to 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 inside 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 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 Revenue

1099 revenue isn’t taxed till you file on the finish of the 12 months, which may 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 unbiased contractor, the paychecks out of your employer are the post-tax quantity however your facet hustle funds are the pre-taxed quantity. Kat and MeKenna have two completely different approaches to those challenges!

MeKenna’s strategy:

In my finances, I wish to separate my 1099 revenue and the taxes that I take out of it, so I take advantage of a cut up transaction. The payee is the identify of the revenue supply and I click on Cut up within the class subject. 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 method, my Revenue v. Expense report exhibits my approximate internet revenue as a substitute of gross revenue 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 facet hustle revenue is available in just a few annual checks. I’m not too anxious concerning the accuracy of my revenue information, so I categorize the total 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 12 months. As soon as I’ve absolutely funded that focus on for the 12 months, the remainder of the 1099 revenue is free to be assigned wherever else.

When deciding the right way to categorize your facet hustle revenue, understand that any cash inflowed right into a class received’t present as revenue in stories. In case your aim is on your revenue in YNAB to indicate as internet revenue, splitting among the inflows to the taxes class will extra precisely mirror that internet revenue.

In case you wish to see your revenue by revenue supply/consumer, you need to use distinct payees for every and test the Revenue v. Expense report back to see how a lot you had been paid by every consumer.

Try extra Quick Tax Time Prep Ideas with YNAB

If You Have Separate Enterprise Financial institution Accounts

As talked about above, when you’ve got separate accounts for your online business, you’ll wish to add them to a separate enterprise finances, fairly than to your private finances. That method, you’ll be capable of separate private and enterprise revenue. You’ll additionally be capable of distinguish between enterprise and private bills extra simply.

We hope we’ve given you some methods to use to this 12 months’s finances (or for those who’re like a few of us, you could 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 when you’ve got any questions on setting this up in your finances!

Are you a freelancer who stumbled upon this publish whereas trying to find a greater technique to handle your funds? With 4 Guidelines, a strong library of free assets, and an award-winning cash administration app, YNAB has all the pieces you could take management of your monetary life and revel in much less cash stress. Attempt it without spending a dime right this moment, no bank card required!