How to Optimize Your Accounting Processes as a Freelance Artist

Freelancers love everything about their profession except the accounting part. It can be overwhelming to keep detailed financial records for your freelance business even if you are your sole employee.

When you decided to be a freelancer, perhaps you quit your 9 to 5 job, you had all the rosy ideas about freelancing in mind. You expected financial freedom, remote work, and the ability to determine your work hours and when to work.

You never spared a thought for the boring parts such as keeping your accounting records, filing your taxes, and other accounting stuff your previous company covered for you.

The only difficulties you expected to face are the task of creating a portfolio website and winning clients. Now you have to do this accounting stuff yourself and it is far from a rosy experience.

You are not alone facing this problem, the majority of freelance artists are in this exclusive club. The only exceptions are freelance accountants and bookkeepers.

In this article, you will learn how to optimize your accounting processes as a freelance artist and the best accounting software for freelancers.

When you optimize your accounting processes, you will lower your tax bills and be in a better position to conduct performance reviews for your freelance business.

Let’s get started.

4 Ways to Optimize Your Accounting Processes as a Freelance Artist

1. Organize Your Bookkeeping

Organizing your bookkeeping is essential to optimizing your accounting processes as a freelance artist. Freelancers tend to leave the bookkeeping till the end of the year where they end up spending lots of hours trying to recall transactions and find receipts.

Doing your bookkeeping this way leaves lots of room for errors. Tracking your monthly income and expenses helps make the bookkeeping process better.

Here are some steps you can take to better organize your bookkeeping.

#1 Cross-Check Your Transactions

Check your records again to ensure that you got all your details right, especially the transaction categories. Many freelancers make the expensive mistake of using assigning a wrong transaction to a non-corresponding category. If you do that, you can never get the right picture of your business finances.

Prevent such mistakes by cross-checking your books to ensure that they are accurate. Keep an eye on the profit margin. Knowing where you stand in your accounting, how much time and money you spend on your craft, and what you earn, can help you set up a more suitable hourly or a fixed rate for your services.

#2 Balance Your Books

If you are doing your accounting yourself (you are not hiring an accountant or using accounting software), ensure you balance your books. If you use the popular double-entry method of bookkeeping, ensure you balance both sides (your credits and debits).

For example, if you spend money on a website maker like Renderforest and Codeless, it counts as a debit ledger. If you get paid for a successful job, it counts as in the credit ledger.

Ensure your records are accurate and you can track the inflow and outflow of money from your freelance business.

#3 Reconcile Your Bank Accounts

The next step is to ensure that your bank account statements match with what you have in your books. This method will help you check if your books are accurate or not.

#4 Talk to an Accounting or Bookkeeping Professional

This tip is the most important one for optimizing your accounting processes as a freelance artist. Nothing beats having professionals offer advice and answer your questions on the accounting part of your freelance journey.

Many freelancers do not know how best to optimize their accounting or how to start keeping records of their business. Having a professional to talk to is a tremendous help. Freelance accounting resources are also valuable guides for freelancers.

2. Keep Proper Documentation

As a freelance artist, you need to keep the following documentation: receipts, invoices, bank statements, accounts payable and receivable, tax filings, payroll records, petty cash slips for small cash payments, previous tax returns, W2, and 1099 forms. You need these documents and other evidence that back up your claims on your tax returns.

The best way to keep track of expense records is to go paperless. There are lots of accounting software and freelancer invoicing apps that help you send invoices, store receipts, and order them on the cloud so you do not lose them. QuickBooks, FreshBooks, and Wave are excellent examples.

3. Set Aside Money for Taxes

As a freelance artist, apart from missing out on many benefits that employed people get such as health insurance, you are also responsible for filing your taxes. It is a huge responsibility, a mistake in tax filing can cause you to pay more in penalties. Here are some tips that can help you stay on top of your tax obligation.

#1 Follow the 30% Rule

When it comes to taxes, to be on the safe side, set aside 30% of your gross income for tax. You may end up not paying up to this percentage but it is best to set it aside as a safety net. There is no need to wait till the end of the year to set it aside, you can do that as you earn.

If your freelance business receives regular payments from clients, setting aside 30% of your income as you earn may not be feasible. You can aggregate your earnings at the end of the month and then set aside 30% of your gross income for tax.

#2 Create a Separate Account for Tax Purposes

Saving your taxes in your bank account is not the wisest of moves. If you do not have the discipline to manage it, you can easily spend your tax savings and end up short when it is time to pay your taxes. The best way is to create a separate account where you keep your taxes.

#3 Get Up to Date on Tax Reforms

Tax laws change almost yearly. If you are doing your bookkeeping and task filing yourself, you are responsible for keeping watch on the latest tax reforms for that financial year.

The tax reforms could be a change to the deadlines for filing certain forms or eligibility rules for tax deductions. You must stay on top of these changes so they do not hit you by surprise.

You can hire a certified public accountant (CPA) to file your taxes on your behalf. A CPA job is to ensure you comply with tax laws. If you cannot afford their services, you can keep track of IRS tax changes yourself to see how it affects you.

4. Use Accounting Software

Accounting software is the best way to optimize your accounting as a freelance artist. It helps you organize your bookkeeping, keep proper documentation, set aside money for taxes, and other functions.

There are lots of accounting software in the market, QuickBooks is the most popular choice in the industry. Other QuickBooks alternatives include Wave, FreshBooks, Xero, and Zoho Books.

QuickBooks is the best accounting software with tax support for freelancers. It integrates with Turbo Tax which makes it the ideal platform for filing taxes if you are using the Turbo Tax platform.

Wave offers amazing accounting features for freelancers. It offers expense tracking, invoicing, account payable, contact management, inventory, and reporting features to users.

FreshBooks is the best accounting software for freelancers with complex accounting needs. Xero is the best accounting software for freelancers in need of a highly customizable and scalable app. Zoho Books is a simple and easy to use accounting software for freelancers

Features to Look Out for When Choosing an Accounting Software

#1 General Functionality

Before choosing accounting software, write down what you need to use it for. All good accounting software can perform basic accounting tasks such as keeping records and invoices.

#2 Industry-Specific Functionality

As a freelancer, you do not need much accounting functionality. If you have a professional website for your services, you may require accounting software that can integrate with it. Accounting software designed for freelancers will offer more value to you than a general one.

#3 Multi-Currency Functionality

As a freelancer, you have the whole globe as your target audience. You get jobs from different countries and get paid in different currencies such as US Dollars, Euros, British Pounds, and so much more. You need accounting software that can easily calculate the exchange rates for these currencies.

#4 Integration with Bank Account

Many accounting software allows you to integrate your bank account so that it can provide more detailed and accurate data about your income and expenses. Doing your bank reconciliations is faster and easier when you integrate your bank accounts with accounting software.

#5 Scalability

When picking an accounting software, choose one whose plan is scalable so you can easily move to another plan as your freelance business grows. Upgrading to another package comes with costs, check to see if the scalability cost is fair and acceptable to you.

#6 Ease of Use

As a freelancer, only consider accounting software with friendly UX experiences. You do not want to get one that is difficult to use with lots of technical aspects. Accounting software for freelance artists should make your accounting easier and not more complicated.

#7 Customer Support

When choosing accounting software, check out the availability of customer support. If you encounter any problem, you will need to speak to a customer support team. Check when the customer support team is available and use forums to get an idea of how responsive they are to customers’ complaints.

#8 Reporting

Virtually all accounting software has reporting capabilities. Ensure the accounting software you use does not only provide reports but you can also download and print these reports offline.

#9 Price

Consider the budget you have to set aside when choosing accounting software. There are affordable accounting software and those that can be considered expensive. What counts as expensive is relative among freelance artists. When choosing accounting software, pick one that offers the best value for your needs at its price point.

Ready to Optimize Your Accounting as a Freelance Artist?

Every part of freelancing is exciting to the freelance artist except for the accounting part. Keeping records, sending invoices, tracking income and expenses, and filing and paying taxes can be time-consuming and labor-intensive.

Most freelance artists do not have any formal education in accounting and have very little knowledge of how it works. You are also responsible for providing customer service for your business. As a freelance artist, you need to master basic accounting principles and customer service principles.

You can optimize your accounting needs by organizing your bookkeeping, keeping proper documentation, setting aside money for taxes, using accounting and time tracking software.

If you need accounting software that offers the best tax support, QuickBooks is the ideal choice. Wave offers many free accounting features for freelancers, it is best for freelancers who are just starting and have little accounting needs.

If you have complex accounting needs and need highly customizable and scalable software, FreshBooks and Xero are the perfect fit. Zoho Books is a full-fledged accounting solution for freelancers that helps organize their books.