Why Independent Contractors Should Consider an LLC Pros and Cons

Smart Accounting Practices for Independent Contractors

If you do not file your profit and expenses, you are putting yourself at risk of being audited by the IRS. Proper bookkeeping will help you set up financial reports that let your plan and make educated decisions for the future. PCMag.com is a leading authority on technology, delivering lab-based, independent reviews of the latest products and services. Our expert industry analysis and practical solutions help you make better buying decisions and get more from technology.

Do accountants have high IQ?

That being said, accountants are generally expected to possess strong quantitative skills and analytical abilities, which can be indicative of above-average intelligence. However, individual IQ scores and abilities can vary widely among accountants, just as they do in any other profession or group of individuals.

Lastly, the nature of construction is that the product is built over time — the majority of projects last more than a year. The long-term nature of the construction business causes accounting and tax challenges when it comes to fiscal period cut-offs. It also exacerbates the disparity between when revenue is earned and when it is billed, which in turn impacts cash flow. Common industry practices like change orders and retainage — not to mention disputes — lead to unique accounting and tax complications.

Best Payroll Software for Independent Contractors

Many small business owners love the software but struggle with its customer service. If you know you’re going to need customer help based on your accounting or software experience, you might consider other options on the list that have a better customer support reputation. We chose QuickBooks because we believe it has the most features, ease-of-use, and pricing that most independent contractors will need. But every contractor is different, so one of the other accounting apps on our list may fit your needs better. Zoho made our pick as best accounting software for part-time contractors because its basic, free version provides everything most contractors will need–all at no cost. If your part-time business generates more than 1,000 invoices a year, you’ll need to upgrade.

When you look at your balance sheet for May, you’ll know that it includes all income you received from clients—but not necessarily everything you charged clients. C corporations and companies earning over $25 million in revenue are required by law to use accrual accounting. We’ll cover the main differences between these two methods of accounting, and help you choose the best one for your therapy practice. Solid financial statements are the key to monitoring how your therapy practice performs. If you’re new to financial statements, or you’ve never read one before, get started with our guide to profit and loss statements for therapists.

IRS Can Advise, but Clarity Comes with Risk

After that incident, I reached out to my insurance agent to find out if my Errors and Omissions (E&O) insurance covered this risk. Paylocity is a payroll processing software solution that automates expense tracking and compliance management. Not only does payroll software help save time, but it also generates year-end financial reports for you to keep an eye on the money that comes in and goes out. Zoho Books has high customer ratings online, but some reviews claim the product is difficult to use and mention bad experiences with the customer support team. Zoho Books isn’t one of the best options out there, but it is a good choice for small business owners who need an all-in-one solution with an easy-to-integrate CRM and help desk software offerings. With this in mind, we researched more than 15 of the best accounting software options nationwide and narrowed down the list based on factors such as ease of use, self-employed options, and cost.

Smart Accounting Practices for Independent Contractors

Generally speaking, for tax purposes the key question as to whether someone qualifies as an independent contractor is the degree of control you can exercise over the worker. The worker will be treated as an employee if the company has the right to determine not just what the employee does, but when, where, or how he or she does it. Well-organized payroll records let a small business owner spend less time finding or dealing with paperwork. That lets them devote more time to seeking new customers and expanding the business.

Mileage Tracking

It may not translate directly to an immediate spike in revenue—how many group therapy programs do you think you could fill up on short notice? —but it’s still a chance to get proactive and help offset the overall dip in income. But make it clear that the policy is meant to keep your practice operating in a stable, sustainable way, for the benefit of your clients—not just your personal finances. Whether you’ve been hit hard by the slowdown in the past, or it’s your first year in business and you’re determined to avoid a bummer summer, here’s how to prepare.

Smart Accounting Practices for Independent Contractors

Private individuals are only able to deduct the cost of therapy from their taxes if the total cost of therapy for the year exceeds 7.5% of their adjusted gross income (AGI). As a tax deductible expense, business meals have a long and colorful history. There’s a lot of debate among business owners (and their accountants) about what constitutes a business meal. The Tax Cuts and Jobs Act (TCJA) of 2017 only further muddied the waters. Itemized deductions include expenses like mortgage interest, real estate and personal property taxes, and medical and dental fees.

How to Properly Classify Employees and Contractors for Bookkeeping Purposes

You planned to spend $300 on internet bills in the first quarter, but you had to upgrade to a more expensive plan; the total expense turned out to be $350. ‍This applies to both flat monthly fees you pay to use these services, and any percentages of your revenue they collect. Money spent on personal therapy sessions bookkeeping for independent contractors can often be deducted on your tax return as it helps you to improve your mental health and grow in your own profession. Any supplies you purchase for your office qualifies as a tax deductible expense. The cost of membership in a professional organization, like the American Counseling Association, is tax deductible.

  • The percentage of completion method (PCM) is a method of accounting that records revenue when it has been earned but not yet received.
  • Essentially, as an independent contractor, you are not an employee of the business you are working for.
  • However, it’s a must-have.The W-9 form is critical to ensure your own tax is in order.
  • That could mean buying fewer potted plants for your office, and just remembering to water the ones you already have.

Further, cloud-based systems enable access at decentralized job sites. The software helps send, track, and file 1099 forms for independent contractors. With features such as payment tracking, it helps you stay tax compliant and avoid penalties due to inaccurate payroll tax filing.

Classifying 1099 employees versus W-2 workers

The complex and manual process of collecting tax information for the W-9 includes tracking all documents and ensuring everything is received. The traditional accounts payable approach is to mail a blank form to each new vendor with a letter requesting they complete it. All payroll taxes and benefits are maintained by the individual contractor, who does not participate in your company-offered benefit plans.