.png "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 options for managing aspect hustle bills and earnings in YNAB into motion in your personal price range to get rid of a few of that tax-time stress!
No matter what sort of work your aspect hustle entails, discovering the appropriate processes, instruments, or methods to assist could make life a complete 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 every 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 if in case you have a separate checking account for your online business, a separate enterprise price range is the best way to go! Try this hyperlink to our Small Enterprise touchdown web page with plenty of sources on organising a separate enterprise price range.
Tips on how to Handle Tax-Deductible Bills
Choice One: Tagging
Kat’s method:
I took the checklist 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 yr (#katwork22) and the spending sort to the memo area. For me, that’s subscriptions, coaching, transportation, meals, provides, costumes, and journey.
I add the tag and the spending sort to the memo area 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 area of the corresponding break up. For recurring deductible bills (subscriptions, mobile phone payments, and so forth.), I ensure that the tag is within the memo area 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 attractive half about this for me is that the tax class doesn’t need to correspond with the spending class in my price range. I’d categorize a workshop beneath a enterprise class like Performing Bills, however I’d categorize a fancy dress piece I purchased to my common Clothes class. I’d wish to fund that parking cost in my common 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 excellent various to the aspect hustle tag. You should use one colour for all tax-deductible bills or you should use one for every sort of spending: crimson might be aspect hustle meals, yellow might be aspect hustle journey, and so forth. The one draw back of utilizing flags is which you can’t flag a break up portion of a transaction, solely the complete transaction. If you happen to use break up transactions on your tax-deductible spending, the tags within the memo area 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 method, I can choose all of the transactions and the Chosen Whole 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 sorts, and Export Chosen Transactions to a spreadsheet app. From there, I can kind by the totally different tax deductible classes and ship that alongside to my accountant.
If you happen to select to make use of flags, you possibly can seek for flags and comply with the identical directions as above!
What to do if one yr’s spending is distributed over a couple of price range
Perhaps you determined to do a contemporary begin mid-year. Or possibly you’re like Kat — you filed for divorce in the midst of the yr and needed to create a brand new price range with new accounts in July! Irrespective of the rationale, generally having a couple of price range that holds transactions in a single yr is unavoidable. Right here’s merge the information 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 yr and use Export Chosen Transactions to create a CSV file of simply these transactions. Do the identical factor within the different price range(s). Once you’re completed, you’ll have two or extra CSV recordsdata with the related spending transactions in them.
You may decide one file to be the primary file. Subsequent, open the opposite one, copy all of the transactions (with out the header) from that price range after which paste all of the transactions into the primary file. Repeat till all transactions for that yr are in a single file. From there, you possibly can delete columns you don’t want, kind and filter as desired.
Choice Three: 1099 Class Group
MeKenna’s method:
I’ve a class group known 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 price range setup like Kat does. Or some mixture of each!
Right here’s my setup:
Categorizing and Monitoring Facet Hustle Revenue
1099 earnings isn’t taxed till you file on the finish of the yr, which may trigger two challenges: not having sufficient put aside when it comes time to pay taxes and inflated earnings knowledge 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 aspect hustle funds are the pre-taxed quantity. Kat and MeKenna have two totally different approaches to those challenges!
MeKenna’s method:
In my price range, I wish to separate my 1099 earnings and the taxes that I take out of it, so I take advantage of a break up transaction. The payee is the identify of the earnings supply and I click on Break up within the class area. 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 means, my Revenue v. Expense report reveals my approximate web earnings as an alternative of gross earnings 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 earnings is available in a couple of annual checks. I’m not too anxious 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 yr. As soon as I’ve totally funded that concentrate on for the yr, the remainder of the 1099 earnings is free to be assigned anyplace else.
When deciding categorize your aspect hustle earnings, take into account that any cash inflowed right into a class gained’t present as earnings in experiences. In case your aim is on 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 use distinct payees for every and examine the Revenue 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, if in case you have separate accounts for your online business, you’ll wish to add them to a separate enterprise price range, somewhat than to your private price range. That means, 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 yr’s price range (or for those who’re like a few of us, you could return and tag all of final yr’s bills to make tax time simpler!)
Don’t hesitate to attain out to the Help crew if in case you have any questions on setting this up in your price range!
Are you a freelancer who stumbled upon this put up whereas trying to find 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 all the things it is advisable to take management of your monetary life and luxuriate in much less cash stress. Strive it free of charge immediately, no bank card required!
