AccountingFilter: ready to get my act together. How?

August 19, 2011 6:20 PM

I'm self-employed. How do I keep my books when I've never kept any books?

I'm self-employed as a writer. I usually make less than $25,000 a year. I have never kept any formal books -- or any books at all. I've been winging it for years, by just sending out invoices I create in Word and saving them in a file on the computer. I deposit payments into my bank account (not a separate business account). I've been filing taxes using H&R Block online (based on the 1099s my clients provide), sorting through receipts but often taking "best guesses" for my expenses. I'm ready to get it together but have no idea where to start. Do I need to do anything to clean up my books retrospectively, or should I just find a system for going forward? Any suggestions for software? Should I get an accountant, and how appalled will they be at my current lack of organization? Posting anonymously because this is embarrassing!

posted by anonymous to work & money (11 answers total)

Quickbooks, or any of the dozen basic billing/accounting apps online (I like Freshbooks myself), will at least start you keeping track.

No shame in getting an accountant. It's work, they're not going to be appalled (honestly, people have been disorganized at them with far more money than you). Just sit down and put together a plan for going forward. If you think you've assed up your taxes in the past, bring your returns/filings with you and let them look at them (in all likelihood, if you've messed up it's been to your disadvantage).

One of the reasons Quickbooks is my primary suggestion is that pretty much all accountants know how to use it, but most of them will understand the spreadsheets you can fetch out of any bookkeeping system.

Our accountant is our least-begrudged business expense. We've got one full-time freelancer in the house, I do it occasionally, we have rental property (at a loss, even), and we just moved to a state with income tax (which neither of us have had before). I heart our tax guy; he's better than Ambien for the sleep we get at night.
posted by Lyn Never at 6:30 PM on August 19, 2011

Disorganized freelancers are not going to shock an accountant, they have seen it all

I'd say you should get one as soon as you can afford to. Self-employment taxes are really tricky, and there are lots of ways that, even with the best intentions, you can err and get a bill from IRS for back taxes.
posted by thelonius at 6:48 PM on August 19, 2011

Okay. Five words for you:

FILE. QUARTERLY. ESTIMATED. TAX. PAYMENTS.

Now that we have that out of the way....

Haha, yeah, don't worry, accountants are not going to be horrified because you are not doing anything abnormal.

No. You do not need to do anything retroactively. You have last year's tax return. You're gold.

But now you can start preparing for this year's taxes. You can and should keep MUCH better track of your expenses, whether it's keeping a "receipt bag" on your desk, or only using one bank card for expenses, or whatever works. Other than that... there's not too much to do! Get a grip on the actual square footage of your home office maybe.

And it'd be good to find an accountant that you LIKE and that "gets" you. They can advise you about some best practices (need a new computer? Should you buy this year or next year?).
posted by RJ Reynolds at 7:53 PM on August 19, 2011

I'm assuming that you file as a self-employed person (Schedule C) rather than having some corporate structure (C- or S-Corp), since you don't have a bank account for the business nor have you been very precise in your recordkeeping and no one has given you grief over it yet.

Estimated tax payments are something you should definitely be doing because the IRS has little sense of humor about these things, unless the freelancing is a side business that provides only a small proportion of your total income for the year.

You know you need to get a better handle on your expenses and it's very much in your best interests to do so. I can practically guarantee you that your expenses are, in fact, higher than your "best guesses". If you underreport your expenses, you're leaving money on the table when you file your taxes.

A folder for expenses, or better yet a series of folders for major categories of expenses (office supplies, telephone, mileage, etc.), is an easy way to go. Every time you spend money for a legitimate business purpose, slip either a receipt or a little note in the right folder. It'll be easy to total up at the end of the year.

Whether you start using Quickbooks or hire an accountant is a judgment call. If this is your main source of income and you're planning to grow the business, an accountant could really help you get things under control and teach you what you should be doing. But Quickbooks is a pretty handy tool to use and really makes life a lot easier. If you start using Quickbooks, try to get everything on it retroactively; when you want to get an historical view of the company or make some projections, you'll be very glad you did.
posted by DrGail at 8:23 PM on August 19, 2011 [1 favorite]

also: you should be spending your energy on writing and marketing, not on doing taxes - that's one reason why they say, you can't afford NOT to hire a bookkeeper/tax person

I once lived in a share house with a guy who had a video shooting and production partnership that suddenly got very successful. After about 2 years, he and his partner burned out, and dissolved the partnership. Then, my friend lived on easy street for about a year or two, from all the money he had saved. No job: he spent most of his energy in a band, he got a new girlfriend. He stopped and smelled the roses.

So, right around the time this money was running out, and he had to think about getting a job again: IRS audit. These guys hadn't a clue - they had just been filing 1040, like in college.....IRS were about to seize his car, his guitars, and his amps etc., all his assets, before he got an emergency loan to pay them off

It's good to get a pro to steer you away from that kind of blunder......
posted by thelonius at 9:21 PM on August 19, 2011

Seconding Freshbooks.
posted by jilliank at 7:53 AM on August 20, 2011

Following this thread...out of curiosity how much does Freshbooks cost? They don't list any pricing structure
posted by radioamy at 7:59 AM on August 20, 2011

A disorganized small business owner??????? OMGOMGOMGOMGOMGOMG. I do bookkeeping, I have only ever met ONE small business owner/self-employed person who I would actually say was organized.

When I was doing it more full-time this was the usual situation. I would show up at a client once per month, they would hand me a shoebox or something like that with all their receipts, invoices, and payments in it. I would enter all transactions, code them properly, file everything, and hand them an empty box, repeat next month. At the end of the year I would send the info to the accountant to do taxes.
posted by magnetsphere at 8:54 AM on August 20, 2011

radioamy: "out of curiosity how much does Freshbooks cost? They don't list any pricing structure"

This is a little sloppy, but here are the details.......
There are 3 plans.......

Plan
Seedling || Evergreen || Mighty Oak

Cost
$19.95 /month || $29.95 /month || $39.95 /month

# of clients you can manage
25 || Unlimited || Unlimited

Additional staff who can access your account
n/a || n/a || 1 ($10 each additional)

# of invoices you can send
Unlimited || Unlimited || Unlimited

# of contractors that can track time and invoice you
Unlimited || Unlimited || Unlimited

Unbranded emails
Yes || Yes || Yes

Project Managers, Team Timesheets & Team Expense Reporting
No || No || Yes

Why the don't have a basic pricing page out front seems sort of stupid.
posted by lampshade at 9:48 AM on August 20, 2011

I'm an employee software developer, so I just use it for personal books, but I see a few folks who use GNUCash for their contract software development lifestyle. I tried out the small business features a bit last week to figure it out and its got a customer and vendor invoicing system you can optionally use.

One thing that will really help you is keeping business expenses on a business expense bank account. In addition to helping you carry over losses from year to year (instead of as a hobby), it also makes classification that much easier. You probably want to clean up your books for the existing tax year, though going further back might help for business analysis & planning or tax purposes.
posted by pwnguin at 11:33 AM on August 20, 2011

I used GNUCash for a (very) small business and it was great.

I tried to use the "business" side of it - invoices and so on - and found it unusable in its awfulness. So I worked as follows:

I made up the outgoing invoices by hand as you do - there were so few of them it didn't really matter.
I put all the incoming invoices and receipts in a folder marked "todo" as soon as they arrived.
I went through once every so often, paid all the invoices, wrote "paid" on them, put everything in GNUCash and then filed them in a different folder marked for that tax year.
Whenever I did this I also brought up the internet banking and double checked that all the subtotals on the bank accounts matched to the penny with the register in GNUCash. On every line.
I had an "Accounts Payable" account in GNUCash where I put things that I'd contracted for verbally but didn't have an invoice for yet, or even things I just wanted to budget for, just to help remember not to spend that money. I just moved things by hand from this section into the right place once they were settled.

At the end of the year, I used GNUCash to print out a report for the accountant, who said he'd rather type everything in by hand from a printout, since he had to go over it all anyway.

Our accountant was sufficiently impressed by the quality of the printout that he charged us £100 less than his initial quote. I think he was expecting boxes of receipts.
posted by emilyw at 12:21 PM on August 20, 2011 [1 favorite]