Wednesday, March 29, 2023

How YNAB Makes Tax Time Simpler for Freelancers

MeKenna and Kat are each on the Help workforce for YNAB. Along with working for YNAB, they’re each facet hustlers: freelance lighting designer (MeKenna) and freelance actor/performer (Kat). Put their strategies for managing facet hustle bills and earnings in YNAB into motion in your personal finances to remove a few of that tax-time stress!

No matter what sort of work your facet hustle entails, discovering the best processes, instruments, or techniques to assist could make life an entire lot simpler. Whereas we each handle our facet hustles a bit in another way in our budgets, we agree that we couldn’t think about managing the bills and earnings with out YNAB.

One factor we do have in widespread is that each one our facet hustle earnings and bills go into and are available out of our private accounts. This works greatest for our private setup, however when you’ve got a separate checking account for your online business, a separate enterprise finances is the best way to go! Try this hyperlink to our Small Enterprise touchdown web page with a lot of assets on establishing a separate enterprise finances.

Handle Tax-Deductible Bills

Choice One: Tagging

Kat’s strategy:

I took the checklist of deductible expense classes I received from my accountant and made word of those that apply to me. After I spend cash for the enterprise, I add my enterprise tag for the 12 months (#katwork22) and the spending kind to the memo discipline. For me, that’s subscriptions, coaching, transportation, meals, provides, costumes, and journey.

I add the tag and the spending kind to the memo discipline of any deductible spending. If I purchased a number of issues in that buy and solely a few of them are deductible, I’ll break up the transaction and add the data solely to the memo discipline of the corresponding break up. For recurring deductible bills (subscriptions, cellphone payments, and so forth.), I be sure that the tag is within the memo discipline of the scheduled repeating transaction for extra automation. When the brand new 12 months comes round and the January transaction drops in with the previous 12 months’s date, I simply have to recollect to replace each the January model of the transaction and the repeating future transaction with the brand new date tag!

The gorgeous half about this for me is that the tax class doesn’t should correspond with the spending class in my finances. I would categorize a workshop beneath a enterprise class like Performing Bills, however I would categorize a fancy dress piece I purchased to my common Clothes class. I would need to fund that parking cost in my typical Transportation class, however I need to be sure to put in writing it off on my taxes.

Choice Two: Flagging

Now you could add customized names to flags, they’re additionally a terrific different to the facet hustle tag. You need to use one coloration for all tax-deductible bills or you need to use one for every kind of spending: pink could possibly be facet hustle meals, yellow could possibly be facet hustle journey, and so forth. The one draw back of utilizing flags is you could’t flag a break up portion of a transaction, solely the total transaction. When you use break up transactions in your tax-deductible spending, the tags within the memo discipline are a greater method to go.

Tax Preparation

When tax time comes round, I seek for every kind of spending and the tag – “#katwork22 coaching.” For the best strategy, I can choose all of the transactions and the Chosen Complete on the high is what I spent in that class. I can add that to the spreadsheet I share with my accountant. 

Alternatively, I can seek for simply the enterprise tag (in my case, #katwork22), choose all of the transactions in all these spending varieties, and Export Chosen Transactions to a spreadsheet app. From there, I can type by the totally different tax deductible classes and ship that alongside to my accountant.

When you select to make use of flags, you possibly can seek for flags and comply with the identical directions as above!

What to do if one 12 months’s spending is distributed over a couple of finances

Possibly you determined to do a recent begin mid-year. Or possibly you’re like Kat — you filed for divorce in the midst of the 12 months and needed to create a brand new finances with new accounts in July! Irrespective of the explanation, generally having a couple of finances that holds transactions in a single 12 months is unavoidable. Right here’s methods to merge the info into one place!

First, you’ll go to All Accounts and seek for your online business tag. Choose all of the transactions for that tax 12 months and use Export Chosen Transactions to create a CSV file of simply these transactions. Do the identical factor within the different finances(s). If you’re completed, you’ll have two or extra CSV recordsdata with the related spending transactions in them. 

You’ll be able to choose one file to be the primary file. Subsequent, open the opposite one, copy all of the transactions (with out the header) from that finances after which paste all of the transactions into the primary file. Repeat till all transactions for that 12 months are in a single file. From there, you possibly can delete columns you don’t want, type and filter as desired.

Choice Three: 1099 Class Group

MeKenna’s strategy:

I’ve a class group known as “1099” and inside it are all 1099-related classes.  Taxes, Tithing, Dropbox, Adobe Suite Subscriptions, Tech & Gear, Journey for Work, Tax Accountant, Reimbursements, and Miscellaneous. You’ll be able to customise this to be your work-related classes, or maintain all of them contained inside your present finances setup like Kat does. Or some mixture of each!

Right here’s my setup:

Manage all your tax-deductible bills in YNAB

Categorizing and Monitoring Aspect Hustle Earnings

1099 earnings isn’t taxed till you file on the finish of the 12 months, which may trigger two challenges: not having sufficient put aside when it comes time to pay taxes and inflated earnings information in YNAB. In case you are each an worker and an impartial contractor, the paychecks out of your employer are the post-tax quantity however your facet hustle funds are the pre-taxed quantity. Kat and MeKenna have two totally different approaches to those challenges!

MeKenna’s strategy:

In my finances, I need to separate my 1099 earnings and the taxes that I take out of it, so I take advantage of a break up transaction. The payee is the title of the earnings supply and I click on Cut up within the class discipline. I personally prefer to put aside 20% for taxes, so if the bill is for $2,000, I categorize $1,600  as “Influx: Prepared To Assign” and $400 to my Tax class.

That approach, my Earnings v. Expense report reveals my approximate web earnings as a substitute of gross earnings for simply my 1099 pay. And it additionally helps me keep in mind to put aside cash for self-employment taxes!

Kat’s strategy: 

Nearly all of my facet hustle earnings is available in a couple of annual checks. I’m not too anxious concerning the accuracy of my earnings information, so I categorize the total influx quantity to Influx: Able to Assign. Then I assign a bit of it to the tax class to verify I’ve some set-aside. I set a Goal on my tax class so I put aside about the identical quantity I needed to pay final 12 months. As soon as I’ve absolutely funded that concentrate on for the 12 months, the remainder of the 1099 earnings is free to be assigned anyplace else.

When deciding methods to categorize your facet hustle earnings, remember the fact that any cash inflowed right into a class received’t present as earnings in studies. In case your objective is in your earnings in YNAB to indicate as web earnings, splitting a few of the inflows to the taxes class will extra precisely mirror that web earnings.

When you prefer to see your earnings by earnings supply/consumer, you need to use distinct payees for every and test the Earnings v. Expense report back to see how a lot you have been paid by every consumer.

Try extra Quick Tax Time Prep Suggestions with YNAB

If You Have Separate Enterprise Financial institution Accounts

As talked about above, when you’ve got separate accounts for your online business, you’ll need to add them to a separate enterprise finances, relatively than to your private finances. That approach, you’ll be capable to separate private and enterprise earnings. You’ll additionally be capable to distinguish between enterprise and private bills extra simply.

We hope we’ve given you some methods to use to this 12 months’s finances (or in the event you’re like a few of us, you could return and tag all of final 12 months’s bills to make tax time simpler!)

Don’t hesitate to attain out to the Help workforce when you’ve got any questions on setting this up in your finances!

Are you a freelancer who stumbled upon this publish whereas looking for a greater method to handle your funds? With 4 Guidelines, a strong library of free assets, and an award-winning cash administration app, YNAB has the whole lot it’s worthwhile to take management of your monetary life and revel in much less cash stress. Strive it free of charge in the present day, no bank card required!

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