So you decided to become a freelance blogger.
You know your topic and you’re well versed in WordPress. You think you’re all set.
However, as you’re filling out your personal tax forms –it’s that time of year!– you think “Oh wow, I’m going to have to keep track of the money coming in and out and fill out tax forms for this business!”
So you scrap the idea and curl up in a ball on the floor sucking your thumb, convinced that the world is against you and that you’ll never be your own boss if the thought of accounting and taxes scares the Dickens out of you…
Umm, it doesn’t need to be like that. Let me walk you through an easy way to track your finances and prepare for your tax forms.
A little caveat here: I know about accounting and taxes in the United States, so anything in this article is related to the rules in place in the USA.
The thing to know is that all bookkeeping really boils down to is keeping track of the money you’ve spent, and categorizing the spending so you know where your money’s going. However, you also want to make sure that you can take the amounts you spent and put them on the tax forms.
A Simple Way to Track Your Finances
![Accounting and Taxes: A Freelance Blogger's Cheat Sheet [USA]](https://i0.wp.com/beafreelanceblogger.com/wp-content/uploads/2013/04/5474825330_4470fa5928_b-300x225.jpg?resize=300%2C225)
Since you’re just starting out, you don’t need to spend hundreds of dollars on accounting software.
What you can do is set up a simple spreadsheet in Microsoft Excel or Google Docs to track your finances.
Here’s how:
- Label the first tab “Money In”
- On this tab in the first row, label the columns as follows:
- Date Charged
- Client
- Amount Charged
- Date Paid
- Label the second tab “Money Out”
- On this tab in the first row, label the columns as follows:
- Date
- Vendor (who you bought from)
- What was purchased
- Amount spent
- Category
“What is this Category thing?” you may be asking. As I mentioned, you need to be able to translate your spending onto a tax form, and the category column is the way to do it. The categories you should use are:
- Advertising
- Commissions
- Contract Labor
- Insurance
- Legal and professional services
- Office supplies
- Rent
- Repairs and maintenance
- Taxes and licenses
- Travel
- Meals
- Ask accountant
So what you do is use one of these categories for each of the transactions on the “Money Out” spreadsheet. The Ask Accountant category is used when you have no idea how you should classify it, and need to get some help.
When the end of the year comes, and it’s time to do your taxes, you can send the file to your accountant, who will add up all the categories and use the totals to complete your taxes. The tax form used by small businesses is usually the Schedule C.
Well, what if you want to do your own taxes? The answer to that would take a little longer than this post, but here’s an overview that will help get you started (and hopefully Sophie will invite me back so I can expand on the topic).
Your Taxes and the Dreaded 1099
A word of warning: make a note of any vendor with whom you spend more than $600. Most likely, you’ll need to send this person a 1099.
This is a tax form that tells the IRS that you’ve spent more than $600 with this company or person. Whenever you start using a new vendor, you will need to give them a form W-9, which asks them to give you the information that you will use to complete the 1099 that you will send to them, along with a copy to the IRS.
Speaking of 1099s, you will be getting a few from the people that you work for. You may want to be proactive and fill out a W-9 and send it to new clients as soon as you sign them on.
A W-9 is an IRS form that you give to your clients with your name, address, and your Taxpayer Identification Number (which you get from the IRS if you signed up as anything other than a sole proprietor, otherwise it is your social security number) so that they can send you a 1099 for what you billed them. You can use the 1099s you receive to help make sure the amount of revenue for the year is correct.
The sum of the 1099s you receive should be the same as what you have billed those customers. This is the lower limit to the total amount you will enter on your tax forms as your revenue; you’ll also need to include any revenue for which you have no 1099.
OK, tax time comes along, you’ve totalled all the amounts by category as listed above, and are all set to fill out your tax forms. So what form do you use?
If you are working by yourself, or have set yourself as a LLC, your business income and expenses goes on Schedule C, which rolls your net income on to your individual return. Take a look at this article for more information about self-employment taxes (yes, the feds come for us too). Or, here’s an article about the taxes you may face if you decide to register as a sole proprietor.
So, you’re ready to go with your finances for your blogging career. If you’re still nervous, don’t be afraid to ask questions. A good accountant will take your concerns seriously, and answer your questions in a way that you can understand.
Now, go out, live your dream, and earn some money!
As a CPA, I’m required to include some legalese, so here it is: In accordance with Circular 230 Treasury Department Regulations, we are required to advise you that any tax advice contained in this article may not be relied upon to avoid penalties under the Internal Revenue Code. If you are interested in a written opinion that can be relied upon to prevent the imposition of tax-related penalties, please contact the author.
Image: Images_of_Money
“The sum of the 1099s you receive should be the same as what you have billed your customers. This is the amount you will enter on your tax forms as your revenue.”
This is incorrect. For most of us, the 1099s we receive will represent only part of our income. You have to claim all of your income, not just the amount shown on your 1099s.
Good point, Bethanny. I should have elaborated a bit more on that. I appreciate your pointing that out.
I think you should make it clearer that the amount you enter on the forms as revenue is the actual revenue you have received. Some clients will NEVER send you a 1099 as long as you live. You can’t be their Mommy, but it isn’t a license to just pretend you forgot you received that money. All income has to be declared. Even income that you never get a 1099 for.
Most years, for me, it’s impossible for the sum of the 1099s to total all of earnings. You would have to only have clients who are great record keepers. The day that happens in the publishing business, I’ll stand amazed.
Good point. As I said to Bethanny, I should have elaborated a bit more, and pointed out that since we do not live in a perfect world, you will not get a 1099 from everyone and need to report everything for which you received payment.
Great points Bethanny and Peachfront–the onus is on you to keep accurate records as to how much money you receive in revenue in any given year.
And you’re correct–there are many 1099s that should be issued that you’ll never see in a million years.
As a CPA myself, the important thing is to keep some type of system that records ALL of your revenue and classifies your expenses in detail. The better you do at keeping track of this information, the less you’ll have to pay tax professionals like me at the end of the year.
That sounds like it makes sense – I’m UK based and don’t know much about US taxation. If Chris approves, I’ll add a note within the post about the sum of your 1099s being the miniumum figure for your annual revenue.
Good points about the revenue should be all the money you receive, not just from the 1099s you receive. Thank you for the comments mentioning that.
Sophie, PLEASE put a note in the post about the 1099s being the minimum figure for your revenue, and it is your responsibility to include all the money your receive as your income.
I am so glad that I read this article… I’ve been freelancing for a while now and the taxes side of everything is what really stresses me out. Thank you!
Naomi,
Thank you for the comment! My goal was to make finances more understandable for those looking to freelance, but were afraid to start because they didn’t want to deal with accounting and taxes. You made my day!
I’ve been thinking of entering the freelance world for sometime, but have always been put off by the admin/business side of things. Like Sophie, I’m UK based too, but this step-by-step guide to tracking finances is really helpful. Thank you.
Thanks for your comment Harry. The reason I started blogging about this topic was that I wanted to take away the fear of the back office stuff. I am glad I was able to help ease some apprehension about getting started.
Chris,
It was a shock to me when that first 1099 came in from Google. I had not realized that those seemingly small deposits would add up at the end of the year. The next year I saved all my receipts that I could justify as tax deductions for my blog. Thanks for the tips on setting up the spreadsheet to track income and expenses.
Nancy – Thanks for the comment. I am glad the spreadsheet is working for you. Drop me a line if you need any help!
Great info Chris!
A lot of freelancers just starting out think they need to have all the top applications and software right off the bat, when in fact they should be concentrating on keeping overheads down until they have appropriate cash flow.
I used an excel spreadsheet to track clients, projects, quotes, invoices and expenses for about the first 18months of running my business before I was comfortable paying for software. Yes I do love that software (Freshbooks) and its saves me boatloads of time but in the beginning sometimes you just need to keep it simple!
Thanks, Rachel. Yes, the best thing to do is keep it simple in the beginning. Just focus on keeping track of what is coming in and out, and work with an accountant at tax time to determine what goes where on your forms.
This article was so necessary. I’m just starting out my business and realized that this is one of my “weakness”. It’s time to freshen up my tracking for 2015. Thank you for your wonderful advice!
Thanks, Sara!
Great simple tips! I definitely started my business with excel, then have since moved onto some software which I love because it gives me pretty graphs and motivates me to keep those graphs moving up! 🙂 Thanks for the reminder about 1099s, it’s now on my “ask my accountant” list!
Leah,
Thanks. I am working on a post on 1099s, and will let you know about it when it is done!
I like your suggestion for an “Ask the Accountant” category. I do find myself occasionally wondering if I’m putting things into the correct column. Thank you!
Glad you like it Nicole! I will have to set up some kind of “Ask the Accountant” page on my website where people can ask questions. If you have any particular questions, dm me and we can chat!
I totally needed to read this! The topic is spot on what’s been rolling around in my head and I definitely need to dig deep into this!
Thanks, Kathryn! I am glad I was able to answer some of your questions. I hope I can provide some more guidance in the future.
WOW. You made that sound SO simple. I’m read and it and thought “hey, I can actually DO that!” I love love love it. Thank you!!
Megan – My goal in all my writing is make these concepts understandable to the average person. Thanks for letting me know that I accomplished my goal!
Great article. Thanks for the info, you made it easy to understand. BTW, if anyone needs to fill out a form 1099S, I found a blank form here http://goo.gl/3SIhPm. This site PDFfiller also has some tutorials on how to fill it out and a few related tax forms that you might find useful.
Paul – thanks for sharing this site. I would caution people to read the instruction for completing the form before using this template, as they want to make sure they put the correct amounts in the appropriate boxes.
Chris, I’m an expat living in Israel. Can you still help me out? I’m 99% sure that I don’t have to worry about Israeli taxes, because I haven’t been here ten years yet (that law is about to change for those who arrive 01/01/2016 or later, but that’s not me), but I have NO IDEA what to do about American taxes….
Chana,
Yes, I believe I can. Drop me a line at chrispedencpa@yahoo.com so we can chat a bit more privately about your situation.