Bookkeeping for Independent Contractors: Everything You Need to Know

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. When someone employs you as https://www.inkl.com/news/the-significance-of-construction-bookkeeping-for-streamlining-projects an “independent contractor,” what precisely does that mean? The best way to stay organized is tracking your day-to-day transactions, reconcile your accounts on a regular basis, and use construction accounting software.

How Much Do Bookkeepers Charge: A State-by-State Breakdown

• As a contractor, keeping your accounting transparent will also allow you to see your income and expenses more clearly.
• This includes recording all clients’ income and any other taxable income sources.
• The number of accounts you’ll be tracking—and the frequency of transactions—may affect this.
• If you’re worried about not having someone you can count on everyday, and don’t mind paying a bit more, a bookkeeping firm is a smart choice.
• When choosing a bookkeeping method, it is important to consider your business needs, the time and resources you have available, and your experience with bookkeeping.
• Project-based rates can vary depending on the scope and duration of the project.

This includes recording all clients’ income and any other taxable income sources. This information is critical for preparing tax returns and accurately reporting your taxable income. Anyone who works on a contract basis to finish a specific project or task is an independent contractor. You are considered a business by the law because you are an independent contractor.

Organizing Your Financial Records

Everything can be too alluring to just brush it under the rug to get paid to your own account. Even if there are some immediate construction bookkeeping advantages, like avoiding having to pay taxes on that money, getting discovered during an audit is not worthwhile. By examining your past and present, financial reports can help your organization get ready for the future and get you ready to make decisions. Paying taxes and having precise estimates of your upcoming tax obligations are quite beneficial. Putting your estimated tax payments in each month or every three months will help you avoid a tax bill that isn’t expected. The downside is that your employers won’t contribute to your 401(k), workers’ compensation, bonuses, unemployment taxes, payroll taxes, or health insurance (K).

Be Transparent with your Income and Expenses

Project-based rates can vary depending on the scope and duration of the project. However, it is highly beneficial to create your Employer ID Number. There are many tax benefits and saving that come along with having a business entity. Independent contractors need to pay the IRS self-employment taxes. Currently, that means you will pay social security 15.3%-12.4% and Medicare 2.9%.

If you hire a full-time employee, you would be paying them a salary of $62,400. If both of these answers are “yes”, they will probably need to be considered employees. For example, I know California has pretty strict laws regarding employment status. Even if you answer “no” to both of these questions, you may still be required to hire them as an employee. I suggest asking your accountant so you are sure you are in compliance with your local regulations. This advice is just as relevant for a solopreneur or a small business owner looking to outsource some of their billable work.

In this case, you’ll need to become acquainted with and use the same bookkeeping services your firm does. Each month your bank will send you a record of your income and expenses. You can use that bank statement to reconcile your transactions to make sure they match up with your own accounting system, invoices, payments, etc. Under regular business accounting circumstances, revenue recognition is simple because they sell a product or service and collect a fixed price right away. They can choose between the cash method or the accrual accounting methods. However, the nature of construction companies makes how these businesses recognize revenue more complicated.

Depending on the location and experience level of the bookkeeper, salaries can vary widely. You will want to open a bank account specifically as an independent contractor business. This will help you separate your financial status from your businesses.

• No matter how successful you feel as an independent contractor right now, it would help if you looked to the future.
• Online bookkeeping service providers offer a cost-effective alternative to traditional firms, leveraging technology to streamline processes and reduce overhead costs.
• If a remote bookkeeping service is worth hiring, they ought to be able to guarantee a certain level of quality.
• Even if you answer “no” to both of these questions, you may still be required to hire them as an employee.
• 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.

If you’re worried about not having someone you can count on everyday, and don’t mind paying a bit more, a bookkeeping firm is a smart choice. The following steps can help you get your construction accounting started on the right foot and help you stay on top of your bookkeeping and financial management. BooXkeeping is a nationwide provider of affordable outsourced bookkeeping services to small and medium-sized businesses.

• This specialized knowledge can be a huge advantage for your business.
• The magic happens when our intuitive software and real, human support come together.
• You can use that bank statement to reconcile your transactions to make sure they match up with your own accounting system, invoices, payments, etc.
• Your bookkeeper should also know how to integrate accounting software with other business tools you use.
• This includes tracking clients’ payments and any deposits made into your business bank account.
• This is an information form for filing to send non-salary income numbers to the IRS.

Track Every Expense:

Pricing for online bookkeeping services is often based on a subscription model or flat monthly fee, with transparent pricing and no hidden costs. An independent contractor does not have the ease of having an employer take their taxes out of each paycheck. Reconciling bank accounts is something independent contractors should consider.