How YNAB Makes Tax Time Simpler for Freelancers

MeKenna and Kat are each on the Help workforce 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 earnings in YNAB into motion in your individual funds to remove a few of that tax-time stress!

No matter what sort of work your facet hustle entails, discovering the proper processes, instruments, or methods 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 earnings with out YNAB.

One factor we do have in frequent is that every one our facet hustle earnings and bills go into and are available out of our private accounts. This works greatest for our private setup, however when you’ve got a separate checking account for what you are promoting, a separate enterprise funds is the way in which to go! Take a look at this hyperlink to our Small Enterprise touchdown web page with a number of sources on establishing a separate enterprise funds.

The right way to Handle Tax-Deductible Bills

Possibility One: Tagging

Kat’s method:

I took the checklist of deductible expense classes I received from my accountant and made observe of those that apply to me. After I spend cash for the enterprise, I add my enterprise tag for the yr (#katwork22) and the spending kind to the memo area. For me, that’s subscriptions, coaching, transportation, meals, provides, costumes, and journey.

I add the tag and the spending kind 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 cut up the transaction and add the data solely to the memo area of the corresponding cut up. For recurring deductible bills (subscriptions, cellphone payments, and so on.), 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 gorgeous half about this for me is that the tax class doesn’t should correspond with the spending class in my funds. I would categorize a workshop below a enterprise class like Performing Bills, however I would categorize a dressing up piece I purchased to my common Clothes class. I would need to fund that parking cost in my regular Transportation class, however I need to make sure that to jot down it off on my taxes.

Possibility Two: Flagging

Now that you could add customized names to flags, they’re additionally a terrific different to the facet hustle tag. You should use one shade for all tax-deductible bills or you need to use one for every kind of spending: crimson could possibly be facet hustle meals, yellow could possibly be facet hustle journey, and so on. The one draw back of utilizing flags is that you could’t flag a cut up portion of a transaction, solely the total transaction. When you use cut up transactions in 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 kind 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 kind by the totally different tax deductible classes and ship that alongside to my accountant.

When 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 funds

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 funds with new accounts in July! Irrespective of the explanation, typically having multiple funds that holds transactions in a single yr 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 what you are promoting 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 funds(s). If 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 funds 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’ll be able to delete columns you don’t want, kind 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’ll be able to 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:

Categorizing and Monitoring Aspect Hustle Earnings

1099 earnings 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 earnings knowledge 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 facet hustle funds are the pre-taxed quantity. Kat and MeKenna have two totally different approaches to those challenges!

MeKenna’s method:

In my funds, I need to separate my 1099 earnings 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 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 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 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 number of annual checks. I’m not too fearful concerning the accuracy of my earnings knowledge, so I categorize the total 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 absolutely funded that focus on for the yr, the remainder of the 1099 earnings is free to be assigned anyplace else.

When deciding the right way to categorize your facet hustle earnings, remember that any cash inflowed right into a class received’t present as earnings in stories. In case your objective is in your earnings in YNAB to indicate as web earnings, splitting a number of the inflows to the taxes class will extra precisely mirror that web earnings.

When you prefer to see your earnings by earnings supply/consumer, you need to 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, when you’ve got separate accounts for what you are promoting, you’ll need to add them to a separate enterprise funds, slightly than to your private funds. 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 funds (or when 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 Help workforce when you’ve got any questions on setting this up in your funds!

Are you a freelancer who stumbled upon this submit 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 you should take management of your monetary life and luxuriate in much less cash stress. Strive it totally free immediately, no bank card required!