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How YNAB Makes Tax Time Simpler for Freelancers

MeKenna and Kat are each on the Help group for YNAB. Along with working for YNAB, they’re each aspect hustlers: freelance lighting designer (MeKenna) and freelance actor/performer (Kat). Put their solutions for managing aspect 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 aspect hustle entails, discovering the fitting processes, instruments, or programs to assist could make life a complete lot simpler. Whereas we each handle our aspect 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 every one our aspect hustle earnings and bills go into and are available out of our private accounts. This works greatest for our private setup, however if in case you have a separate checking account for your small business, a separate enterprise funds is the way in which to go! Take a look at this hyperlink to our Small Enterprise touchdown web page with numerous assets on organising a separate enterprise funds.

Find out how to Handle Tax-Deductible Bills

Possibility One: Tagging

Kat’s strategy:

I took the record of deductible expense classes I received 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 12 months (#katwork22) and the spending sort to the memo area. For me, that’s subscriptions, coaching, transportation, meals, provides, costumes, and journey.

I add the tag and the spending sort to the memo area 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 area of the corresponding cut up. For recurring deductible bills (subscriptions, mobile phone payments, and many others.), I guarantee that the tag is within the memo area 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 attractive half about this for me is that the tax class doesn’t need to correspond with the spending class in my funds. I would categorize a workshop below a enterprise class like Performing Bills, however I would categorize a dressing up piece I purchased to my common Clothes class. I would wish to fund that parking cost in my ordinary Transportation class, however I wish to be certain that to jot down it off on my taxes.

Possibility Two: Flagging

Now that you would be able to add customized names to flags, they’re additionally an awesome various to the aspect hustle tag. You should utilize one coloration for all tax-deductible bills or you should use one for every sort of spending: purple might be aspect hustle meals, yellow might be aspect hustle journey, and many others. The one draw back of utilizing flags is that you would be able to’t flag a cut up portion of a transaction, solely the complete transaction. For those who use cut up transactions on your tax-deductible spending, the tags within the memo area are a greater technique to go.

Tax Preparation

When tax time comes round, I seek for every sort of spending and the tag – “#katwork22 coaching.” For the best strategy, 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 sorts, 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.

For those who 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 multiple funds

Perhaps you determined to do a contemporary begin mid-year. Or perhaps you’re like Kat — you filed for divorce in the midst of the 12 months and needed to create a brand new funds with new accounts in July! Irrespective of the rationale, typically having multiple funds that holds transactions in a single 12 months is unavoidable. Right here’s easy methods 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 12 months and use Export Chosen Transactions to create a CSV file of simply these transactions. Do the identical factor within the different funds(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 decide 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 12 months 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 strategy:

I’ve a class group known as “1099” and within 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 funds setup like Kat does. Or some mixture of each!

Right here’s my setup:

Arrange your entire tax-deductible bills in YNAB

Categorizing and Monitoring Aspect Hustle Revenue

1099 earnings isn’t taxed till you file on the finish of the 12 months, which might trigger two challenges: not having sufficient put aside when it comes time to pay taxes and inflated earnings information 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 aspect hustle funds are the pre-taxed quantity. Kat and MeKenna have two completely different approaches to those challenges!

MeKenna’s strategy:

In my funds, I wish to separate my 1099 earnings and the taxes that I take out of it, so I exploit a cut up transaction. The payee is the title of the earnings supply and I click on Cut up within the class area. 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 method, my Revenue v. Expense report exhibits my approximate internet earnings as a substitute of gross earnings for simply my 1099 pay. And it additionally helps me bear in mind to put aside cash for self-employment taxes!

Kat’s strategy: 

The vast majority of my aspect hustle earnings is available in just a few annual checks. I’m not too anxious in regards to the accuracy of my earnings information, so I categorize the complete 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 12 months. As soon as I’ve absolutely funded that focus on for the 12 months, the remainder of the 1099 earnings is free to be assigned wherever else.

When deciding easy methods to categorize your aspect hustle earnings, remember that any cash inflowed right into a class received’t present as earnings in reviews. In case your aim is on your earnings in YNAB to point out as internet earnings, splitting among the inflows to the taxes class will extra precisely replicate that internet earnings.

For those who prefer to see your earnings by earnings supply/consumer, you should use distinct payees for every and examine the Revenue v. Expense report back to see how a lot you have been paid by every consumer.

Take a look at extra Quick Tax Time Prep Ideas with YNAB

If You Have Separate Enterprise Financial institution Accounts

As talked about above, if in case you have separate accounts for your small business, you’ll wish to add them to a separate enterprise funds, relatively than to your private funds. That method, 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 funds (or in case you’re like a few of us, you might return and tag all of final 12 months’s bills to make tax time simpler!)

Don’t hesitate to attain out to the Help group if in case you have any questions on setting this up in your funds!

Are you a freelancer who stumbled upon this submit whereas trying to find a greater technique to handle your funds? With 4 Guidelines, a sturdy library of free assets, and an award-winning cash administration app, YNAB has all the things you’ll want to take management of your monetary life and revel in much less cash stress. Attempt it free of charge at the moment, no bank card required!



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