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Thursday, February 23, 2023

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 eradicate a few of that tax-time stress!

No matter what sort of work your facet hustle entails, discovering the correct 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 in case you have a separate checking account for what you are promoting, a separate enterprise finances is the way in which to go! Try this hyperlink to our Small Enterprise touchdown web page with numerous sources on organising a separate enterprise finances.

The best way to Handle Tax-Deductible Bills

Choice One: Tagging

Kat’s strategy:

I took the record of deductible expense classes I obtained from my accountant and made word 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 break up the transaction and add the knowledge solely to the memo area of the corresponding break up. For recurring deductible bills (subscriptions, cellphone payments, and so on.), I guarantee 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 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 ordinary Transportation class, however I need to be certain to put in writing it off on my taxes.

Choice Two: Flagging

Now you can add customized names to flags, they’re additionally a fantastic various to the facet hustle tag. You need to use one colour for all tax-deductible bills or you should use one for every kind of spending: purple may very well be facet hustle meals, yellow may very well be facet hustle journey, and so on. The one draw back of utilizing flags is you can’t flag a break up portion of a transaction, solely the total transaction. In case you use break up transactions in your tax-deductible spending, the tags within the memo area are a greater technique to go.

Tax Preparation

When tax time comes round, I seek for every kind of spending and the tag – “#katwork22 coaching.” For the only strategy, 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 totally different tax deductible classes and ship that alongside to my accountant.

In case you select to make use of flags, you may 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 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 yr and needed to create a brand new finances with new accounts in July! Regardless of the rationale, generally having a couple of finances 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 finances(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 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.

Choice Three: 1099 Class Group

MeKenna’s strategy:

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 preserve all of them contained inside your present finances setup like Kat does. Or some mixture of each!

Right here’s my setup:

Manage your entire tax-deductible bills in YNAB

Categorizing and Monitoring Aspect 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 information in YNAB. In case you are 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 totally different approaches to those challenges!

MeKenna’s strategy:

In my finances, I need to separate my 1099 earnings and the taxes that I take out of it, so I exploit a break up transaction. The payee is the title of the earnings supply and I click on Break up within the class area. 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 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 strategy: 

The vast majority of my facet hustle earnings is available in just a few annual checks. I’m not too nervous concerning the accuracy of my earnings information, so I categorize the total influx quantity to Influx: Able to Assign. Then I assign a piece 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 concentrate on for the yr, the remainder of the 1099 earnings is free to be assigned wherever else.

When deciding the right way to categorize your facet hustle earnings, understand that any cash inflowed right into a class gained’t present as earnings in reviews. In case your purpose is in your earnings in YNAB to point out as web earnings, splitting a few of the inflows to the taxes class will extra precisely replicate that web earnings.

In case you wish to see your earnings by earnings supply/consumer, you should 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 Suggestions with YNAB

If You Have Separate Enterprise Financial institution Accounts

As talked about above, in case you have separate accounts for what you are promoting, you’ll need to add them to a separate enterprise finances, relatively than to your private finances. That manner, 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 finances (or in case you’re like a few of us, chances are you’ll return and tag all of final yr’s bills to make tax time simpler!)

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

Are you a freelancer who stumbled upon this publish whereas looking for a greater technique 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 could take management of your monetary life and revel in much less cash stress. Strive it free of charge at the moment, no bank card required!

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