Introduction: Customized Financial Management

In the diverse and dynamic business landscape of Gloucester County, New Jersey, one-size-fits-all solutions simply don’t cut it, especially when it comes to bookkeeping. Every business, from a cozy café in Woodbury to a tech startup in Clayton, has unique financial needs and challenges. This article explores the importance and benefits of tailored bookkeeping services for businesses in South Jersey, ensuring that your financial management aligns perfectly with your specific business requirements.

Key Takeaways

1. Customization is Key: Tailored bookkeeping services cater to the unique financial needs of each business, ensuring accuracy and relevance in financial management.
2. Industry-Specific Solutions: These services adapt to the specific financial practices and requirements of different industries, providing more precise financial tracking and reporting.
3. Scalability for Growth: As your business in Gloucester County grows, tailored bookkeeping services can evolve to meet your expanding financial management needs.
4. Ensuring Compliance: With customized bookkeeping, businesses can better comply with the specific tax laws and financial regulations of New Jersey.
5. Enhanced Financial Decision-Making: Tailored bookkeeping offers deeper financial insights, aiding in informed decision-making and proactive financial management.

Comparison Table: Bookkeeping Services

The Essence of Tailored Bookkeeping

Tailored bookkeeping is about more than just tracking income and expenses. It’s a bespoke service that adapts to the intricacies of your individual business, considering your industry, size, and specific financial goals. This personalized approach ensures that your financial records are not just accurate but also insightful, providing a clear picture of your business’s financial health.

Why Tailored Bookkeeping is Essential

A. Industry-Specific Requirements

Different industries have different financial nuances. For instance, a retail business in Glassboro may have different inventory management needs compared to a service-based business in Deptford. Tailored bookkeeping addresses these industry-specific requirements, ensuring that your financial records accurately reflect your business operations.

B. Scalability

As your business grows, so do your financial complexities. Tailored bookkeeping services can scale with your business, adapting to changes like increased transactions, expanded product lines, or additional locations in Gloucester County.

C. Regulatory Compliance

Every business in New Jersey must comply with specific state and federal tax laws. Tailored bookkeeping ensures that your financial records meet these regulations, reducing the risk of compliance issues.

The Benefits of Tailored Bookkeeping

A. Enhanced Financial Insights

Customized bookkeeping provides deeper insights into your business’s finances. This includes detailed profit and loss reports, cash flow analysis, and customized financial statements that are relevant to your specific business model.

B. Time and Cost Efficiency

With tailored bookkeeping, you spend less time trying to fit your unique financial data into generic accounting software. This efficiency translates into cost savings, as you can focus more on core business activities.

C. Proactive Financial Management

Tailored bookkeeping allows for proactive financial management. It can help in identifying financial trends, potential issues, and opportunities for growth, enabling you to make well-informed business decisions.

How Tailored Bookkeeping Services Work

A. Initial Assessment

The process begins with an in-depth assessment of your business’s specific needs. This includes understanding your industry, the size of your business, and your financial management goals.

B. Customized Solutions

Based on the assessment, a customized bookkeeping plan is developed. This may involve setting up industry-specific accounting practices, integrating with your existing systems, and establishing a reporting framework that suits your needs.

C. Ongoing Support and Adaptation

Tailored bookkeeping is not a set-and-forget service. It involves ongoing support and adaptation to changes in your business and the economic landscape of Gloucester County.

Conclusion: Your Partner in Financial Success

In Gloucester County, where business diversity is as rich as the community itself, tailored bookkeeping services are not just a luxury but a necessity. By partnering with a bookkeeping service that understands and adapts to your unique business needs, you are setting the stage for informed decision-making, regulatory compliance, and sustainable growth. Embrace tailored bookkeeping and witness how it transforms your financial management from a routine task to a strategic asset.

Statistics

• Business Efficiency: Small businesses using tailored bookkeeping services report 35% greater efficiency in financial management.
• Compliance Rate: Tailored bookkeeping increases compliance with financial regulations by 50% for businesses in New Jersey.
• Growth Support: 60% of businesses using tailored bookkeeping services experienced improved decision-making leading to growth.

FAQs

Q1: What makes tailored bookkeeping different from standard bookkeeping? A1: Tailored bookkeeping is customized to fit the specific needs, industry, and scale of a business, unlike standard bookkeeping which follows a one-size-fits-all approach.

Q2: How can tailored bookkeeping help my business grow? A2: It provides detailed and relevant financial insights that aid in strategic planning and decision-making, essential for business growth.

Q3: Is tailored bookkeeping suitable for small businesses in Gloucester County? A3: Absolutely, it is especially beneficial for small businesses, providing them with the specific financial management tools and insights they need.

Q4: Can tailored bookkeeping adapt to changes in my business? A4: Yes, one of the key benefits of tailored bookkeeping is its ability to adapt and scale according to changes in your business.

Q5: Does tailored bookkeeping help with tax compliance? A5: Yes, it ensures that your financial records are accurate and compliant with New Jersey’s tax laws and regulations.

Introduction: The Pillar of Business Success

In the bustling business environment of Gloucester County, New Jersey, accurate bookkeeping stands as the foundation of every successful enterprise. From Pitman to Glassboro, small businesses thrive on meticulous financial record-keeping. This article delves into the critical role of bookkeeping in the business landscape of South Jersey.

Key Takeaways

1. Vital for Financial Health: Accurate bookkeeping is crucial for understanding and managing the financial well-being of your business.
2. Legal Compliance: It ensures adherence to New Jersey’s tax laws and financial regulations, protecting your business from potential legal issues.
3. Informed Decision Making: Precise bookkeeping data aids in making informed strategic decisions, crucial for growth and sustainability.
4. Efficiency through Technology: Leveraging modern bookkeeping software can significantly enhance efficiency and accuracy.
5. Challenges Addressed with Solutions: Balancing accuracy with efficiency and navigating complex tax regulations are key challenges that can be managed through regular practices and professional guidance.

What is Bookkeeping?

Bookkeeping is the process of recording, organizing, and managing all financial transactions in a business. It’s a systematic approach that ensures all financial data is accurate, up-to-date, and comprehensive.

The Crucial Role of Bookkeeping

Bookkeeping is not just a mere administrative task; it’s a critical lifeline for businesses in Gloucester County. Accurate bookkeeping provides a clear and truthful reflection of a business’s financial health. It’s the key to understanding how well your business is performing, informing you of your financial strengths and areas needing improvement. Moreover, it forms the basis for strategic planning and budgeting. For instance, a small café in Sewell or a boutique in Mullica Hill can leverage precise bookkeeping to track seasonal variations in revenue and plan accordingly.

In the context of legal compliance, accurate bookkeeping is indispensable. New Jersey’s tax laws and financial regulations are stringent, and meticulous financial records are your first line of defense in an audit. They also play a crucial role in fulfilling obligations like sales tax remittance and income reporting, ensuring your business aligns with state and federal requirements.

A. Financial Health and Transparency

Accurate bookkeeping is essential for understanding the financial health of your business. It provides clear insights into income, expenses, and profitability, fostering transparency in financial management.

B. Compliance and Legal Obligations

In New Jersey, adhering to financial regulations is paramount. Proper bookkeeping ensures compliance with tax laws and financial reporting requirements, safeguarding your business against legal issues.

C. Informed Decision Making

With precise financial records, business owners in Gloucester County can make more informed decisions regarding investments, growth strategies, and budget allocations.

Bookkeeping Best Practices

Regular Monitoring and Organization

A cornerstone of effective bookkeeping is regularity and organization. This means consistently recording transactions as they occur and organizing them in a systematic manner. Utilize categorized ledgers for expenses, revenues, assets, and liabilities to keep your financial records orderly and accessible. This practice is vital for businesses in Gloucester County, where diverse economic activities necessitate detailed and segregated financial tracking.

Leveraging Technology

In today’s digital age, bookkeeping software has become a game-changer. Tools like QuickBooks or FreshBooks offer automation, accuracy, and ease of access, essential for efficient bookkeeping. These digital solutions are particularly beneficial for businesses in Gloucester County, where staying technologically abreast is key to competitiveness. They not only streamline the bookkeeping process but also provide valuable insights through financial reporting and analysis features.

A. Regular Updates and Reconciliation

Consistently updating your books and reconciling bank statements is crucial. This helps in identifying discrepancies early and maintaining accurate records.

B. Categorization of Transactions

Proper categorization of transactions aids in clearer financial analysis. This includes distinguishing between expenses, income, assets, and liabilities.

C. Utilizing Technology

Leveraging bookkeeping software can streamline the process, reduce errors, and provide real-time financial insights. Many businesses in South Jersey are embracing digital solutions for their bookkeeping needs.

Bookkeeping Challenges and Solutions

Balancing Accuracy with Efficiency

One of the biggest challenges in bookkeeping is maintaining a balance between accuracy and efficiency. It’s essential to be detail-oriented but also time-efficient. Implementing a systematic approach, such as scheduled weekly reviews of your books, can help maintain this balance. For businesses in Gloucester County, where the pace of business can vary, this regularity ensures that your financial records are both accurate and up-to-date.

Navigating Complex Tax Regulations

Understanding and adhering to the complex tax regulations of New Jersey can be daunting for small business owners. The solution lies in staying informed and possibly seeking professional assistance. For instance, a tax professional in Gloucester County who is well-versed in local and state tax laws can provide invaluable guidance, ensuring that your business remains compliant and benefits from any applicable tax advantages.

A. Time Management

Small business owners often struggle with time management. Outsourcing bookkeeping or using automated software can save valuable time.

B. Keeping Up with Regulations

Staying informed about New Jersey’s changing financial laws is vital. Consider consulting with a local Gloucester County accounting expert to stay compliant.

C. Accuracy and Detail

Maintaining accuracy and attention to detail in bookkeeping can be daunting. Regular audits and checks are recommended to ensure precision.

Conclusion: The Foundation of Your Business’s Success

In Gloucester County, where small businesses form the heart of the community, accurate bookkeeping isn’t just a regulatory necessity; it’s a strategic tool for growth and stability. By embracing diligent bookkeeping practices, your business in South Jersey can navigate the complex financial landscape with confidence, ensuring long-term success.

Statistics

• Business Efficiency: Businesses using automated bookkeeping report a 40% reduction in time spent on financial management.
• Compliance: 70% of small businesses in New Jersey found bookkeeping crucial for tax compliance.
• Error Reduction: Digital bookkeeping solutions have been shown to reduce human error by up to 30%.

FAQs

Q1: What is the main purpose of bookkeeping? A1: The main purpose of bookkeeping is to accurately record all financial transactions, which provides a clear picture of a business’s financial health and compliance status.

Q2: How often should bookkeeping be done? A2: Bookkeeping should be done regularly, ideally daily or weekly, to maintain up-to-date and accurate financial records.

Q3: Can bookkeeping help in tax preparation? A3: Yes, accurate bookkeeping is essential for efficient and correct tax preparation, ensuring compliance with tax laws.

Q4: Should a small business in Gloucester County use bookkeeping software? A4: Yes, small businesses in Gloucester County can greatly benefit from bookkeeping software for accuracy, efficiency, and better financial analysis.

Q5: Is it necessary to hire a professional for bookkeeping? A5: While not always necessary, hiring a professional can be beneficial, especially for navigating complex tax regulations and ensuring accuracy.

Today’s business environment is complex. Every financial decision counts. As such, bookkeeping is the bedrock of a strong business with good financial health. Keeping a meticulous record of every financial transaction, including purchases to sales, receipts to earnings, and payments, is incredibly important. At its core, good bookkeeping ensures that every dollar flowing in and out of your business is accounted for with precision.

But what happens when your bookkeeping practices are not as good as they could be? In such cases, the consequences can be dire, affecting more than the bottom line.

The Leading Causes of Poor Bookkeeping Practices

Before getting into what can happen when the bookkeeping practices of your business are poor, let’s discuss why such issues happen. Understanding the root cause is important because you can then start to pinpoint the problems within your business. 

1. Not Understanding Bookkeeping: Many businesses relegate bookkeeping to a secondary concern, particularly when business is fast-paced. However, bookkeeping has an incredibly critical role. 
2. DIY Accounting: Attempting to manage all accounting in-house can lead to inefficiencies and errors. While it may seem cost-effective, it often results in inadequate record keeping and financial mismanagement.
3. Communication Breakdown: Poor communication with your bookkeeper can lead to misunderstandings, mistakes, and omissions in your financial records.
4. Neglecting Small Transactions: It’s easy to focus on the big financial moves and forget about the small transactions. However, these can add up and significantly impact your financial picture.
5. Organizational Inefficiencies: Inefficient systems and workflows can hinder the timely and accurate recording of financial transactions.

The Consequences of Bad Bookkeeping Habits

Now, how can bad bookkeeping damage your business? There are many things that can occur as the result of poor bookkeeping. Take a look at some of the consequences that may occur:

Cash Flow Problems

Inadequate bookkeeping can obscure your business’s financial compass, rendering you blind to crucial aspects such as cash flow. This is not a mere inconvenience but a substantial risk. You may encounter late payments, overdrafts, and financial instability. Without a firm grip on your cash flow, you risk drifting aimlessly, unable to invest, expand, or seize growth opportunities.

Tax Troubles and Missed Deadlines

Tax season can be a nightmare when your financial records are in disarray. As a business, your financial records are the pillar needed to avoid tax troubles, like audits, missed deadlines, and penalties. With good bookkeeping, you can avoid the stress and legal entanglements involved with tax mistakes. 

Internal Fraud Risks

Insecure financial processes, improper segregation of duties, and unchecked access to sensitive financial information render your business vulnerable. Successful internal fraud attempts can lead to losses that are not just financial but can also force your business to meet an untimely demise. This underscores the importance of bookkeeping as a means of protecting your business and the privacy of your customers, as well. 

Pricing Blindness 

Without proper expense tracking, pricing becomes a shot in the dark, akin to navigating through a dense fog. Profit margins may shrink, and the true potential of your products or services remains shrouded in ambiguity. This “pricing blindness” will make it harder to navigate challenges and when keeping up with your competitors. 

Compliance Issues 

You must adhere to financial regulations and compliance standards. If your bookkeeping practices are poor, you will wind up facing—again—tax issues and other legal penalties. Legal repercussions can range from fines to more severe consequences, tarnishing your business’s reputation and financial stability.

Poor Decision-Making 

In the complex world of business, making informed decisions is your compass. Without the right financial data at your disposal, your decisions will not be one hundred percent informed. Solid business decisions require a firm foundation of accurate financial data. With poor bookkeeping, the information guiding your decisions is unreliable, jeopardizing your business’s path and consuming precious time and energy.

Lack of Financial Insight 

Sound decision-making in the business world relies on accurate financial data. Without proper financial records, your decisions are akin to moving forward without clear vision. Without this insight, strategic planning and growth become uncertain endeavors, ultimately affecting your business’s journey towards success.

Better Bookkeeping Practices for Healthier Business

Here are some details on how to elevate your bookkeeping practices:

Document Everything

The cornerstone of impeccable bookkeeping is the thorough documentation of all financial transactions. Every receipt, statement, and financial document must be diligently saved and organized. This meticulous attention to detail ensures accurate reconciliation and provides a clear trail of your business finances.

Remain Consistent With Updates

Consistency is the rhythm that underpins reliable bookkeeping. Regular updates to your accounting records are vital to maintain accuracy and integrity. Updating records as transactions occur ensures a streamlined and reliable data set. Furthermore, if you happen to run into tax issues, such as an audit, having a well-documented and up-to-date financial record will smooth the process, making it less stressful.

Hire a Professional Bookkeeper

While modern software can revolutionize your bookkeeping processes, the role of a skilled and experienced professional bookkeeper remains invaluable. Professional bookkeepers, like those at South Jersey accounting firms, are well-versed in accounting principles, ensuring that your financial records are not just accurate but also compliant with relevant regulations. They will also efficiently manage your financial data, saving you valuable time and allowing you to focus on core business activities.

Count on a South Jersey Accounting Firm for Your Professional Bookkeeping

Good bookkeeping is not just a regulatory requirement; it’s the lifeblood of your business’s financial health. Neglecting it can lead to a cascade of issues that may jeopardize your business’s future. However, with the right practices, tools, and professional support, you can ensure that your financial records are not just accurate but also the foundation upon which your business can thrive and prosper.

Are you looking for accounting firms in New Jersey? With nearly 40 years of experience, TMD Accounting offers top-notch services in Gloucester County, from payroll management to tax services. Stay updated with ever-changing tax laws and optimize your returns. Elevate your financial management in New Jersey with us. Contact TMD Accounting today by calling 856-228-2205 or by filling out the contact form. 

With the fast-paced nature of the construction industry, accounting for these businesses can be challenging. The accounting methods in this field differ from those in other sectors. Contractors have to handle numerous projects simultaneously, each distributed across multiple locations. Along with that, they must manage each one’s costs, revenue, and profitability. Find out the best accounting for construction business practices to maximize your profitability and cash flow.

Key Construction Accounting Best Practices

With the complex nature of the industry, you need to consider allocating direct and indirect project costs, selecting between cash-basis or accrual-basis accounting, and choosing the right revenue recognition method for long-term projects. Properly managing change orders can also have a significant impact on the success of a project. Here are the best practices for construction accounting that you will want to implement for your business.

Job Costing

Accurately tracking expenses for each project is crucial for your construction company to control costs and measure profitability. With that, you can ensure that all direct and indirect expenses are promptly allocated to the proper job. During any project, you will want to record expenses and submit them daily. Time-tracking software can help monitor labor costs, while expenses should be categorized in the same way as in the estimate to analyze whether the job is proceeding as planned. Your company should also have a standard formula for allocating indirect expenses, such as administrative overhead, to each project. When you use modern, cloud-based project management software from the job site, your workers improve on-time completion records, keep customers informed, and minimize non-billable work.

Choose the Right Accounting Method

Construction companies have two primary options when it comes to accounting methods: cash basis and accrual basis. Smaller firms often prefer simpler cash-basis accounting, which records revenue when received and expenses when paid. However, companies with revenues exceeding $25 million cannot use cash accounting for tax purposes. The accrual-basis method is more complex and required for larger businesses, including public companies. This method generally provides a more accurate picture of a company’s finances but may obscure short-term cash flow issues.

Manage Change Orders

Change order management in construction projects is crucial to ensure that changes don’t cut into your project profits or result in customer disputes. The original contract should outline how to handle change orders in your project. You should also establish a standard change order process that includes the complete documentation of the work and costs required for each change requested. Ideally, you should hold off on starting work until a signed agreement from the customer is received. Some companies need a formal approval process to accept change orders. No matter what, you will want to record change orders accurately in the accounting system so that project cost and profitability can be tracked.

There are several accounting approaches to managing change orders. For unapproved change orders, you can add the costs associated with the change order to the project’s direct costs. If you are implementing a change order that’s unapproved but likely to be approved, you can add the costs to an asset account until approval for the change order is obtained. Alternatively, you can add the expense to the project’s costs and increase the anticipated project revenue by the same amount. For approved change orders, all costs associated with the change order should be added to the project costs, and the total contract value should be increased by the amount charged for the change order.

Select the Right Tax Strategies

Construction firms need to plan their tax strategies year-round to get the most benefit and ensure they comply with IRS requirements. Often, contractors that are owners or investors in the company are considered pass-through entities, including sole proprietorships, partnerships, and most LLCs and S corporations, can deduct their allocated share of losses. Contractors can also minimize tax liability by maximizing retirement plan contributions and reducing pretax income. By implementing these tax reporting strategies, contractors can better manage their tax liability and maximize their tax benefits.

Use a Firm That Handles Construction Accounting in NJ

A South Jersey accountant can help you keep your financial records organized and accurate, ensuring compliance with tax regulations and avoiding penalties. They can help you choose the right accounting method, such as accrual-basis accounting, that accurately reflects your company’s finances and enables you to manage your tax liability.

Additionally, an accounting firm can provide valuable financial analysis and reporting, helping you make informed business decisions. They can help you identify profitable areas of your business, enabling you to make adjustments and optimize your operations. These professionals can also help you track project costs and profitability, giving insight into which projects are the most profitable and ones that may need adjustments.

Finally, outsourcing your accounting needs to a professional service can save you time and resources, enabling you to focus on your core business operations. It can also provide you with peace of mind, knowing that your finances are handled by experts who are well-versed in the complexities of construction accounting.

Need Help With Your Construction Accounting?

If you’re a small construction business owner looking for reliable and personalized accounting services, TMD Accounting is the right choice. As a family-owned and -operated firm, we understand small businesses’ unique needs and challenges. Our experienced team of professionals has helped numerous clients over the years. We’re dedicated to building long-lasting relationships based on trust, integrity, and exceptional service. Our firm offers various accounting services, including payroll processing, tax planning and filing, and financial statement preparation. Schedule a consultation by calling 856-228-2205.

Managing bookkeeping can take a lot of work for many small business owners. Balancing your responsibilities to the clients, employees, and suppliers is vital to your role as a small business owner. Sometimes, bookkeeping is the last item on your to-do list. Neglecting your bookkeeping can mean a disaster for your business. If you need help to keep ahead of these tasks, it could be time to contact a professional service to manage your books. Without help, your bookkeeping system could be heading for a disaster.

How Do Bookkeeping Practices Go Wrong?

If you open up your books and get a headache, it might be time to ask for professional assistance. Neglected bookkeeping is one way small businesses can find themselves in a disastrous situation. There are many reasons why bookkeeping gets put to the wayside. When a company does not have the resources or time to keep track of its books, it leads to inaccuracies in the financial records. Some bills are not paid, or transactions need to be entered. With that, you will have a mess on your hands. It can be a challenge to manage the books. When you ignore the problem, it can lead to bigger issues for your business, including putting a strain on your financial outlook.

Signs of Bookkeeping Problems

Many bookkeeping failures are avoidable. If you are not paying attention to your finances and bookkeeping, there could be a potential problem on your hands, and you might not even know it. Some red flags signify issues with your bookkeeping.

Unable To Get Bank Funding

It is a big red flag when you cannot secure bank funding. You might not have the right data to satisfy the bank’s requirements. Banks want well-maintained books to approve any loan. Proper bookkeeping lets you know how money is moving throughout your business. A well-maintained bookkeeping system will help you understand the financial status of your business. With that, you can prevent surprises when applying for additional funding.

Not Compliant With Loan Terms

If your business has borrowed a loan, it usually comes with a few stipulations. These loans often have loan covenants. There are three types of them: affirmative, negative, and financial. With an affirmative covenant, you may be required to submit financial statements or carry insurance. A negative covenant could limit specific actions without approval, such as taking additional debt or selling assets. Finally, you may be required to maintain certain standards with a financial covenant. If you violate these covenants, it could lead to a seizing of assets or calling in the loan. Proper bookkeeping will ensure you are never put in that position with a lender.

Lack of Monthly Closing Procedures

All small businesses should have clear monthly closing procedures. When the books are a mess, it could lead to missing out on something important. If you miss a bill or make a mistake in payroll, it may lead to a snowball effect of errors. One small issue can cause problems that will be difficult to correct in the future.

Unable To Complete Monthly Statements

Monthly financial statements are vital to the success of any business. If the books are not updated, you will not have access to any current data, leading to poor business decisions. You need up-to-date information to help grow your business. Monthly statements are the best way to understand the health of your business.

How Can You Fix Bookkeeping Problems?

First, you may feel overwhelmed with the bookkeeping duties. In those cases, you should use small business accounting services to help manage your financial books. Take a look at other tips to help better organize any book.

Maintain and Organize Receipts

Not maintaining invoices and receipts can cause problems for many business owners. Some businesses do not have the time to keep these books in order. When you have professional services on your side, they can make sure that everything is tracked and organized. Whenever you get an invoice or receipt, you need to account for it. Allowing the receipts and invoices to become disorganized could lead to money management problems in the future.

Separate Personal and Business Expenses

When business owners keep their personal and business expenses together, it can lead to many problems. It can be easy to place the wrong credit in a personal account. However, mixing these accounts can lead to significant bookkeeping problems. Trying to figure out the problem will be a time-consuming process. You can avoid all those issues by separating your personal finances from business ones. When you have a bookkeeper, they will double-check to ensure all the credits and expenses are placed in the proper accounts.

Perform Bookkeeping on a Daily Basis

Many books turn into disasters because it can be easy to forget to update the records. Business owners often focus on other duties, pushing bookkeeping to the side. A professional accounting and bookkeeping service can help you manage your books without taking time away from your business.

Find a Qualified Bookkeeping Service for Your Business

If you want to ensure you have well-maintained books, you need to hire a professional bookkeeping or accounting service. At TMD Accounting, we have over 40 years of experience helping small businesses throughout Gloucester County. We are a family-owned and -operated business that is an affordable, reliable, and flexible choice for your company. Whether you have a disaster-in-waiting or need a new bookkeeping system, we are here to help you. Schedule your consultation by calling 856-228-2205.

If you work as an independent contractor, the Internal Revenue Service (IRS) classifies you as a business. You will need to perform bookkeeping and pay your business taxes to avoid potential problems. Unlike an employee, you won’t receive a W-2, and the businesses with which you work won’t pay the employer share of your Social Security and Medicare taxes. You will be responsible for paying the self-employment tax. Here’s what you should know about bookkeeping and taxes as an independent contractor from the accounting professionals at TMD Accounting.

Independent Contractors vs. Employees

Independent contractors are not considered to be employees of the businesses for which they work. Employees receive regular wages, have schedules created by their companies, and have taxes withheld from their paychecks. By contrast, independent contractors are paid for the projects on which they perform work, handle their schedules, and handle tax payments on their own.

You will also be responsible for buying private health insurance and will not be eligible for workers’ compensation if you are hurt on the job. Finally, independent contractors also are not protected by major employment laws.

Accounting for Independent Contractors

The first thing you should do is determine which accounting method to use, including the cash-basis or accrual-basis accounting methods. The cash-basis method is simple and simply means that you track your income upon its receipt and your expenses at the time you pay them. The accrual-basis method involves counting your income when you earn it and your expenses at the time they accrue rather than when you receive or pay them. A certified public accountant (CPA) at TMD Accounting can help you choose the method that is best for your independent contracting business.

How Independent Contractors Pay Taxes

As an independent contractor, you will have to pay the self-employment tax, which means you will pay taxes to Medicare and Social Security. The self-employment tax is reported on Schedule SE. Before you complete Schedule SE, you will first need to use Schedule C of Form 1040 to calculate your business’s total income or loss.

If you earn more than $600 while working for one of your clients, your client will send a Form 1099-MISC to you and the IRS. If you do not receive this form, you are still responsible for including the money that you earned. You should have a separate saving account you use to deposit money throughout the year to pay your self-employment tax so that you don’t have a huge tax bill at the end of the tax year. Independent contractors typically also must make quarterly estimated tax payments throughout the year.

Bookkeeping for Independent Contractors

You must conduct proper bookkeeping throughout the year as an independent contractor. Having organized books can also help to ensure that you don’t forget to pay accounts receivable, that you send your invoices on time, and that your bills and expenses are paid on time.

You will need to track all of the money that comes in and that you pay out for business-related expenses. You should have a separate business bank account and keep your personal account separate.

Track all business-related expenses and save receipts, including the following examples:

• Office lease expenses
• Business computer, phone, and printer receipts
• Hours spent per project
• Jobs you have completed
• How much you charge per hour for each client
• Operating expenses
• Money paid to you
• Bank transfers
• Travel expenses
• Bills for utilities, phone, and internet
• office supplies
• Career-related courses, subscriptions, and books
• Accounting software receipts

Establish your Business Entity

It is a good idea to register your business with the state and choose a legal entity structure under which to operate. You can opt to register as a sole proprietor, but this type of entity will not protect your personal assets from potential liability claims. Many independent contractors instead choose to form limited liability companies (LLCs), which offer liability protection. You should also apply for a federal employer identification number (FEIN) from the IRS even if you don’t have employees.

Once you establish your entity structure and get a FEIN, you can open a business bank account. Make sure to also open a business saving account to save money for your taxes and set aside at least 30% of your income each month. Keep your personal and business accounts separate to avoid potential problems.

Reconcile your accounts at the end of each month to make sure your books and accounts accurately reflect your income and expenses. Accounting software can be helpful, and hiring a professional from a firm that offers small business accounting services can be even more so. Most independent contractors can benefit from hiring a CPA to help during tax time to help prevent potential mistakes. Depending on your business, you might also benefit from having a CPA help throughout the year to provide guidance and support that could help you save money as you grow your business.

Find an Accountant for My Small Business

When you are an independent contractor, you are also a small business owner. Keeping on top of your books and taxes is critical to prevent potential tax problems. Call TMD Accounting today for help with your business accounting at 1-856-228-2205.