Sunday, March 26, 2023

How YNAB Makes Tax Time Simpler for Freelancers

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

No matter what sort of work your facet hustle entails, discovering the suitable processes, instruments, or methods to assist could make life an entire lot simpler. Whereas we each handle our facet hustles a bit otherwise 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 frequent is that every one our facet hustle earnings and bills go into and are available out of our private accounts. This works finest for our private setup, however when you’ve got a separate checking account for your small business, a separate enterprise funds is the best way to go! Try this hyperlink to our Small Enterprise touchdown web page with numerous assets on organising a separate enterprise funds.

Tips on how to Handle Tax-Deductible Bills

Possibility One: Tagging

Kat’s method:

I took the listing of deductible expense classes I obtained from my accountant and made be aware of those that apply to me. After I spend cash for the enterprise, I add my enterprise tag for the yr (#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 cut up the transaction and add the knowledge solely to the memo discipline of the corresponding cut up. For recurring deductible bills (subscriptions, cellular phone payments, and many others.), I ensure that the tag is within the memo discipline of the scheduled repeating transaction for extra automation. When the brand new yr comes round and the January transaction drops in with the previous yr’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 attractive half about this for me is that the tax class doesn’t need to correspond with the spending class in my funds. I’d categorize a workshop beneath a enterprise class like Performing Bills, however I’d categorize a dressing up piece I purchased to my common Clothes class. I’d need to fund that parking cost in my traditional Transportation class, however I need to be certain to put in writing it off on my taxes.

Possibility Two: Flagging

Now that you could add customized names to flags, they’re additionally an important various to the facet hustle tag. You should use one colour for all tax-deductible bills or you should utilize one for every kind of spending: purple might be facet hustle meals, yellow might be facet hustle journey, and many others. The one draw back of utilizing flags is that you could’t flag a cut up portion of a transaction, solely the total transaction. If you happen to use cut up transactions in your tax-deductible spending, the tags within the memo discipline are a greater solution to go.

Tax Preparation

When tax time comes round, I seek for every kind of spending and the tag – “#katwork22 coaching.” For the only method, I can choose all of the transactions and the Chosen Complete on the prime 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 kind by the completely different tax deductible classes and ship that alongside to my accountant.

If you happen to select to make use of flags, you possibly can seek for flags and observe the identical directions as above!

What to do if one yr’s spending is distributed over multiple funds

Possibly you determined to do a contemporary begin mid-year. Or possibly you’re like Kat — you filed for divorce in the course of the yr and needed to create a brand new funds with new accounts in July! Regardless of the explanation, typically having multiple funds that holds transactions in a single yr is unavoidable. Right here’s the right way to merge the information into one place!

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

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

Possibility Three: 1099 Class Group

MeKenna’s method:

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 possibly can customise this to be your work-related classes, or maintain all of them contained inside your present funds setup like Kat does. Or some mixture of each!

Right here’s my setup:

Arrange your whole tax-deductible bills in YNAB

Categorizing and Monitoring Facet Hustle Earnings

1099 earnings isn’t taxed till you file on the finish of the yr, which may trigger two challenges: not having sufficient put aside when it comes time to pay taxes and inflated earnings knowledge in YNAB. If you’re 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 completely different approaches to those challenges!

MeKenna’s method:

In my funds, I need to separate my 1099 earnings and the taxes that I take out of it, so I take advantage of a cut up transaction. The payee is the title of the earnings supply and I click on Cut up within the class discipline. I personally wish 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 means, 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 method: 

Nearly all of my facet hustle earnings is available in a couple of annual checks. I’m not too frightened concerning the accuracy of my earnings knowledge, so I categorize the total influx quantity to Influx: Able to Assign. Then I assign a piece of it to the tax class to ensure 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 yr. As soon as I’ve totally funded that concentrate on for the yr, the remainder of the 1099 earnings is free to be assigned wherever else.

When deciding the right way to categorize your facet hustle earnings, take into account that any cash inflowed right into a class gained’t present as earnings in studies. In case your aim is in your earnings in YNAB to indicate as web earnings, splitting a few of the inflows to the taxes class will extra precisely replicate that web earnings.

If you happen to wish to see your earnings by earnings supply/shopper, you should utilize distinct payees for every and verify the Earnings v. Expense report back to see how a lot you have been paid by every shopper.

Try extra Quick Tax Time Prep Ideas with YNAB

If You Have Separate Enterprise Financial institution Accounts

As talked about above, when you’ve got separate accounts for your small business, you’ll need to add them to a separate enterprise funds, fairly than to your private funds. That means, 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 yr’s funds (or when you’re like a few of us, it’s possible you’ll return and tag all of final yr’s bills to make tax time simpler!)

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

Are you a freelancer who stumbled upon this submit whereas looking for a greater solution to handle your funds? With 4 Guidelines, a sturdy library of free assets, and an award-winning cash administration app, YNAB has every part it is advisable to take management of your monetary life and luxuriate in much less cash stress. Attempt it without cost at the moment, no bank card required!

Related Articles


Please enter your comment!
Please enter your name here

Latest Articles