Bookkeeping for Independent Contractors: Everything You Need to Know

As your independent contracting business grows, so does the complexity of your financial management. Outsourced bookkeeping services can scale with your business, ensuring that your financial processes remain efficient and effective. Unlike traditional employees, independent contractors are responsible for their own taxes.

Monitoring Cash Flow

• While there are plenty of benefits to working as an independent contractor, keep in mind that it does come with its disadvantages.
• Given the complexity, businesses are strongly encouraged to contact their legal counsel to discuss their compliance efforts in the independent contractor space.
• An independent contractor does not have the ease of having an employer take their taxes out of each paycheck.

Here at Better Bookkeepers, we’ve installed QuickBooks with countless clients. Not only can you ensure a seamless installation process by hiring us, but we’ll set it up to serve your business optimally and ensure you have a good understanding of how it works. To ensure you can use QuickBooks to its fullest potential, we’ll also train you on the intricacies of the software. Bookkeeping helps track things like supplies, fuel, or office tools.

Although independent contractors can resemble ordinary employees, they are actually separate legal entities from the companies for which they work. As an independent contractor, keeping track of the money you receive and withdraw from your account is crucial. Finally, businesses should accept bookkeeping for independent contractors that the days of having one simple form of independent contractor agreement are over if they have contractors in multiple states. Independent contractor agreements will either need multiple state disclosures and nuances or the business will need multiple forms.

Independent contractors face a more unpredictable financial situation, unlike traditional employees with set paychecks. Income can vary from project to project, you often work with multiple clients simultaneously, and the opportunity for tax deductions comes with the responsibility of meticulous tracking. Paying taxes and having accurate snapshots of what you are estimated to pay in taxes helps a lot.

If your claims are contested, you can support your records with various accounts. Businesses may not even know where their independent contractors are working. Given the complication of hiring contractors in many states, businesses should consider whether restricting work location, which is common with employees, can be feasible. Businesses should consider mandatory, individual arbitration clauses in independent contractor agreements. The Illinois Freelance Worker Protection Act, which went into effect in mid-2024, applies to independent contractors working in Illinois where payments total $500 or more in a 120-day period. The law requires documentation containing similar information as the New York and California law, but doesn’t require execution of that document.

Do independent contractors have to track everything?

Every month, your bookkeeping team categorizes transactions, imports bank statements, and creates financial statements, as well as relieves you from the stress of taxes. You can sign up for a month of free bookkeeping to get a feel of the best accounting and bookkeeping for independent contractors. For independent contractors, efficient bookkeeping is a cornerstone of financial success. While managing your own finances is possible, outsourcing bookkeeping services offers a range of benefits, including expertise, time savings, cost-efficiency, and peace of mind. By choosing the right bookkeeping service, you can focus on what you do best—delivering top-notch services to your clients—while leaving your financial management in capable hands. Outsourcing bookkeeping is a strategic investment in your business’s financial stability and growth.

What Makes Independent Contractors Successful?

You will have to pay taxes and maintain your bookkeeping as a business. You probably chose to work independently because you wanted to escape the routine weekday or because you possessed a specialty that companies sought after. But as an independent contractor, you might not have understood how crucial it is to make sure you stay on top of your bookkeeping and accounting. Note that not all income is taxable, and some forms of income may be taxed differently.

Do you have an existing bookkeeping system that has been making errors or takes more time than you’d like? In this case, hiring Better Bookkeepers for a one-time review is your solution. We can perform an exhaustive review of your books and documentation procedures, identify problems, and propose lasting solutions.

• If there is an audit, you won’t be able to support your expenditures if you don’t have the necessary paperwork.
• No matter how successful you currently feel as you are an independent contractor, it would be beneficial if you looked ahead.
• It will also be easier for you to see your income and expenses as an independent contractor if your bookkeeping is transparent.
• However, when a company hires an independent contractor, it is different.
• Getting paid to your personal account can be too tempting to sweep it under the rug.

Accounting and bookkeeping software

It is also important to keep up-to-date with tax laws and regulations, as these can impact your bookkeeping and tax obligations. It can be a huge chore if you try to reconcile your books on your own. You may easily balance your bank accounts by accounting for independent contractors with software like MyCountSolutions, Zero, Wave, or Freshbooks. Dealing with financial matters can be stressful, especially for independent contractors who are not finance experts. Outsourcing bookkeeping services alleviates this stress, allowing you to have peace of mind regarding your financial affairs. Hiring a bookkeeper will give you more time to focus on growing your business.

If small business finances are eating up hours and stressing you out, or if you’ve completely ignored it and feel behind, it’s time for a change. Here’s how to handle bookkeeping in the most efficient way possible—so you spend less time crunching numbers and more time on helping your business thrive. Verify that the bookkeeping service uses modern accounting software that integrates seamlessly with your existing systems. Installing the software and getting to a point where it’s working for you at an optimal level can be challenging.

Bookkeeping refers to the process of recording and maintaining financial transactions in an organized manner. First and foremost, independent contractors must maintain accurate records of all financial transactions. This includes keeping track of income received from clients, documenting expenses related to their work, and storing all relevant financial documents, such as invoices and receipts. Employees can sign up for health insurance that’s been provided by their employer, but independent contractors are expected to obtain their own health insurance.

“Shoeboxed makes it stupid simple to scan receipts…”

You only pay for the services you need, without the overhead of a full-time employee. Outsourced bookkeeping services are staffed by experienced professionals who understand the intricacies of tax regulations and financial reporting. Their expertise ensures that your financial records are accurate and compliant with all legal requirements.