I hate accounting software. It's tedious and expensive.
As a freelance writer, consultant and conference producer, you might think I need it to track all of my income and expenses.
After banging my head against the wall trying to use QuickBooks for a year, I worked with my accountant to create a strategy that helps me organize my business finances and prepare for tax season. Here's how I manage my estimated quarterly taxes and tax return without missing out on major tax breaks.
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1. Open a business checking account
The No. 1 rule of bookkeeping without using accounting software is to have separate accounts for your business and personal funds. This keeps you organized and makes it simple to keep personal and business transactions separate. Business expenses come out of your business bank account and business income flows into it.
I pay myself directly from my business checking account by transferring a percentage into my personal checking account. I aim to leave enough in my business checking account to cover any upcoming business expenses and to avoid the bank's monthly fee.
💰 Expert tip:
I pay my quarterly estimated taxes from my personal checking account, but you might decide to leave this money in your business account and pay them your taxes directly from there. The amount you should put away will vary depending on your business's costs and your tax bracket.
2. Track your money using spreadsheets
Since I have a separate bank account, keeping track of my business income and spending is easy. Instead of plugging the numbers into complicated accounting software, I use a simple spreadsheet.
Each quarter I download all of the transactions from my business bank account as an Excel spreadsheet. I can quickly sort it by values and exclude any transfers to my personal bank account. That gives me a basic profit and loss statement that my accountant can use to estimate my quarterly tax liability and pay the IRS.
3. Consider a business credit card
Whenever you have a business expense that you need to charge to a credit card, I recommend using a separate business credit card.
Similar to the separate bank account, you'll have a clear record of everything to avoid trouble during tax time. Keeping a small business credit card also has a few other perks including not impacting your personal credit score and earning potentially higher rewards for common business spending categories.
4. Create a revenue tracker for more complicated income
While a separate bank account makes managing my income easy, there are some revenue sources that get a bit trickier. For more complicated income, I recommend creating your own revenue tracker in a spreadsheet.