How YNAB Makes Tax Time Simpler for Freelancers

MeKenna and Kat are each on the Assist group for YNAB. Along with working for YNAB, they’re each facet hustlers: freelance lighting designer (MeKenna) and freelance actor/performer (Kat). Put their recommendations for managing facet hustle bills and earnings 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 best processes, instruments, or methods to assist could make life an entire lot simpler. Whereas we each handle our facet 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 widespread is that every one our facet hustle earnings 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 small business, 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 numerous sources on organising a separate enterprise finances.

Tips on how to Handle Tax-Deductible Bills

Possibility One: Tagging

Kat’s method:

I took the record of deductible expense classes I acquired from my accountant and made observe 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 kind to the memo discipline. For me, that’s subscriptions, coaching, transportation, meals, provides, costumes, and journey.

I add the tag and the spending kind 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 data solely to the memo discipline of the corresponding cut up. For recurring deductible bills (subscriptions, mobile phone 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 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 must correspond with the spending class in my finances. I would categorize a workshop beneath a enterprise class like Performing Bills, however I would categorize a fancy dress piece I purchased to my common Clothes class. I would need to fund that parking cost in my traditional Transportation class, however I need to ensure to jot down it off on my taxes.

Possibility Two: Flagging

Now which you could add customized names to flags, they’re additionally an ideal different to the facet hustle tag. You should utilize one shade for all tax-deductible bills or you should use one for every kind of spending: purple could possibly be facet hustle meals, yellow could possibly be facet hustle journey, and so forth. The one draw back of utilizing flags is which you could’t flag a cut up portion of a transaction, solely the total transaction. In the event you use cut up transactions to your tax-deductible spending, the tags within the memo discipline are a greater strategy to go.

Tax Preparation

When tax time comes round, I seek for every kind of spending and the tag – “#katwork22 coaching.” For the only 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 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 the event you select to make use of flags, you’ll be able to seek for flags and comply with the identical directions as above!

What to do if one yr’s spending is distributed over multiple finances

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

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

You possibly can decide 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 yr are in a single file. From there, you’ll be able to delete columns you don’t want, type and filter as desired.

Possibility Three: 1099 Class Group

MeKenna’s method:

I’ve a class group known 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 possibly can 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 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 facet 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 earnings and the taxes that I take out of it, so I exploit a cut up transaction. The payee is the identify 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 approach, my Revenue v. Expense report exhibits my approximate web earnings as a substitute 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:

The vast majority of my facet hustle earnings is available in a couple of annual checks. I’m not too frightened concerning the accuracy of my earnings knowledge, 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 yr. As soon as I’ve absolutely funded that focus on for the yr, the remainder of the 1099 earnings is free to be assigned anyplace else.

When deciding tips on how to categorize your facet hustle earnings, needless to say any cash inflowed right into a class received’t present as earnings in reviews. In case your purpose is to your earnings in YNAB to point out as web earnings, splitting among the inflows to the taxes class will extra precisely replicate that web earnings.

In the event you prefer to see your earnings by earnings supply/shopper, you should use distinct payees for every and test the Revenue v. Expense report back to see how a lot you have been paid by every shopper.

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

If You Have Separate Enterprise Financial institution Accounts

As talked about above, when you’ve got separate accounts for your small business, you’ll need to add them to a separate enterprise finances, somewhat than to your private finances. That approach, you’ll be capable of separate private and enterprise earnings. 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 yr’s finances (or in case you’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 Assist group 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 strategy to handle your funds? With 4 Guidelines, a sturdy library of free sources, and an award-winning cash administration app, YNAB has every little thing you should take management of your monetary life and luxuriate in much less cash stress. Strive it totally free at the moment, no bank card required!