Under current tax law, an independent contractor is classified as a business. Independent contractors need to pay taxes and keep accurate bookkeeping records. While you probably become an independent contractor to get away from the typical workday, it doesn’t mean that there are no responsibilities. Keeping track of your finances can help grow your business. Here are a few smart accounting practices you should use as an independent contractor.

How Independent Contractors Differ from Employees

Anyone who works a traditional job for a company is classified as an employee. The company will withhold and report a portion of its employees’ wages. Social Security, Medicare, unemployment, and tax liabilities are withheld from the employees’ checks. At the end of the year, all the taxable income is documented on a W-2 form filed with the IRS.

As an independent contractor, you are not classified as an employee. The opposite is true. Yes, there is a lot more freedom with this type of work, but you are responsible for keeping track of expenses, paying quarterly taxes, and maintaining all bookkeeping. Most employers will pay workers’ compensation, unemployment taxes, and payroll taxes. In addition to that, the company contributes to a 401(K) and pays some health insurance premiums. When you are an independent contractor, you must cover all those costs.

Why Bookkeeping Is Essential for Independent Contractors

As you can tell, you have a big obligation as an independent contractor. That is why you need to keep up-to-date and accurate records for your business. It can be easy to fall behind on these duties. You could get involved in a project or forget to add an entry.

However, you must properly record every expense and payment in your books. Otherwise, you will have difficulty determining your payments during tax season. Proper bookkeeping will allow you to set up financial reports so that you can plan for the future. Organized books ensure that every invoice is sent and all bills are paid.

If you need help with bookkeeping, consider hiring a company specializing in small business accounting services. These professionals can help manage your bookkeeping and assist with other accounting responsibilities. With that, you can save time and prevent any problems with incorrect entries in the future.

Smart Accounting Practices

Now that you know the importance of good bookkeeping and accounting, here are a few smart accounting practices to incorporate into your business.

Choose Your Accounting Method Wisely

As an independent contractor, you have two accounting methods: cash-based or accrual-based accounting. A cash-based method is simple. It tracks your income when you receive it and documents those expenses as they are paid. Accrual-based accounting records your income when earned but not received. With that, you can account for the money when a project is finished, giving you a better look at your future finances. If you want to know which accounting methods will work for your business, reach out to a trusted accountant. They can help you find the process that will work for your independent company.

Pay Estimated Taxes

As an independent contractor, you need to pay self-employment taxes to the IRS for Medicare and Social Security. These taxes are paid when you file a Schedule SE. The schedules are included with your Form 1040. Before filling out the SE, you need to calculate the total income/loss with a Schedule C.

When you complete more than $600 of work from a client, they need to file and send a copy of Form 1099-MISC. The client should also send all of that information to the IRS. Independent contractors are responsible for saving money to pay taxes on a quarterly basis. Paying those estimated taxes can help you avoid any unexpected tax liabilities. You should save between 30% to 40% of your income for taxes.

Track Expenses

If you don’t want to deal with financial surprises, you need to track everything. You must document all the money sent in and out of your account. All that documentation can protect you in the event of an audit. Today, there are many ways to track your expenses and income. You can hire someone or use a software program. Whatever method you choose, select one that you can use on a daily basis. It is vital to record everything, including:

• Equipment purchases
• Hours spent working on a project
• Hours billed to a client
• Invoices paid to you
• Phone and internet bills
• Bank transfers
• Office supplies
• Accounting software and other costs
• Web hosting and design costs

Don’t Mix Personal with Business

Remember to keep those finances separate. You should open a bank account specifically for your business. With that, you can separate your finances from your personal accounts. Along with helping to ease the bookkeeping duties, a business banking account can help prove that your expenses are tied to the business.

Ask for Help

You might want to handle these duties by yourself, but it is okay to ask for a bit of assistance. A professional bookkeeper or accountant can help manage those books and finances. With their help, you will have the most accurate data for your records. All of that goes a long way to help with your taxes and plan for a brighter future.

Bookkeeping and accounting can be overwhelming, especially when you have other responsibilities. These services will ensure that all invoices are sent, and you are paid. Most importantly, they can maintain order and accuracy in your books. Yes, you could try to keep up-to-date on these records, but it can be a time-consuming task. With help from a professional service, you can benefit from their expertise whenever you need it.

Need an Accountant For Your Small Business?

At TMD Accounting, we understand it can be challenging for small businesses to take care of those accounting and bookkeeping responsibilities. For over 40 years, small and large companies have trusted us for their payroll, taxes, and bookkeeping services. We are a reliable and affordable way to manage your financial health. Schedule a consultation by calling 856-228-2205.

Documenting the financial information for your business can help you understand your profits, costs, and overall value. By reviewing your accounts, you will know your company’s financial health and make plans for the future. There are several types of accounts that can help with this task. If you are ready to have a clearer outlook on your financial picture, let’s look at the five types of accounts found in accounting.

What Is an Account?

In basic terms, an account is a specific record in your balance sheet or financial ledger. These reports will document the financial activity in your business, such as verifying cash on hand or reporting daily transactions. Companies will use several accounts to keep track of their financial records. Some of the most common accounts include assets, expenses, liabilities, equity, and income. These accounts are used for different purposes, and you must update them daily or weekly.

Five Types of Accounts in Accounting

Now that you know about the most common account types, let’s take a deeper look at them.

1 – Assets

You must include your company’s tangible and intangible items in the asset account. For example, if you have business laptops, those are known as tangible assets. These are physical items. Design patents would fall into the intangible category. Intangible items do not take a physical form. Other tangible and intangible assets could include:

• Vehicles
• Equipment or machinery
• Property or office buildings
• Trademarks or copyrights

If you want to find the asset value of these items, gather a few pieces of information. First, you need to know the current value of your assets. For example, an antique store could have:

• $30,000 in cash
• $200,000 in property
• $400,000 in antiques

To find the value, use this simple formula:

• $30,000 + $200,000 + $400,000 = $630,000

By adding these values together, the antique store has an asset value of $630,000.

2 – Expenses

Another vital account focuses on those expenses. The expense account can include purchased services or products that helped generate income for the company. For example, some of these purchases may have helped boost the productivity of distribution or manufacturing operations. Common expenses can include:

• Marketing costs
• Employees salaries
• Facility costs

If your company sends employees on a business trip, you must document those costs in the expense account. However, you never want to include personal expenses in these accounts. Otherwise, you will need to separate these expenses, which can turn into a bookkeeping nightmare. Use this example to find your expenses:

A pet grooming company wants to calculate the value of its costs. First, the company needs to look at all of the expenses from the past year, including:

• $12,000 in pet shampoo and conditioner
• $1,000 in other grooming supplies
• $350,000 in employee salaries
• $1,000 marketing costs
• $24,000 facility costs

Add all those expenses together to find the value:

• $12,000 + $1,000 + $350,000 + $1,000 + $24,000 = $388,000

By looking at these values, the pet grooming company had $388,000 in expenses for the past year.

3 – Income

If you want to know whether you have a successful business or not, you must record your income. An income account records all of your company’s money from selling services or products. Some income accounts will even include business dividends from investments. Keep in mind that you should record actual investments in the asset account. An income account is a place where you will maintain all the data about the company’s profits. If you want to find the income value of a business, take a look at this example:

An industrial roofing company wants to calculate the income from the recent quarter. The sales are:

• $150,000 in roof installations
• $350,000 in new roof sales
• $79,000 in roof repairs

By adding all of those values together, they can find out the income value:

• $150,000 + $350,000 + $79,000 = $579,000

The most recent income from the quarter is listed at $579,000.

4 – Liabilities

The liabilities account will include payment obligations, outstanding debts, and other scheduled payments. Some examples of liabilities include:

• Account overdrafts
• Late utility bills
• Business loans
• Outstanding maintenance costs

Make sure to document all liability costs that apply to your business. When you record them, you need to account for any interest costs that can accompany these current liabilities. Take a look at this example:

A property management company wants to find its liabilities over the year. They owe:

• $500,000 in property mortgages
• $77,000 in business loans
• $600 in late utility bills

Once again, add these values to get the liabilities:

• $500,000 + $77,000 + $600 = $577,600

As you can see, the property management company has $577,600 in liabilities.

5 – Equity

Finally, we can look at equity accounts. These accounts show the value of your assets after you have deducted liabilities. The value can represent the current worth of your business. If you want to find the equity account’s value, you need to create a balance sheet with an itemized list of the assets and liabilities. Take the total costs of the liabilities and subtract that from the total assets. Once you have that figure, you can understand the current equity level of your business. Look at this example:

A delivery company wants to calculate its equity. Their liabilities and assets are listed as:

• $865,000 in assets
• $411,000 in liabilities

Subtract the liabilities from the assets to find the equity value:

• $865,000 – $411,000 = $454,000

The current equity value for this company is $454,000.

Keeping These Accounts Can Be Challenging

Even with the above examples, it can be hard to keep track of all accounts. Consider using small business accounting services. You will not have to figure out complicated formulas or try to manage records. All of that is handled for your business. Plus, you will know that these accounts are up-to-date with accurate records.

At TMD Accounting, our team has helped small and large businesses in Gloucester County with their accounting, bookkeeping, and tax needs. If you need an accountant for your small business, schedule a consultation by calling 856-228-2205.

Knowing the fundamentals of hospital accounting is important for several reasons. First, it can help the accounting team understand what systems are needed for record-keeping purposes. Secondly, accounting allows executives to invest in their facilities’ tools, equipment, and staff. As a result, accounting can help provide better healthcare for patients in the community.

Why Is Accounting Important in Healthcare?

There are many reasons why healthcare accounting is vital for the medical industry and the community. Accounting practices can impact the day-to-day operations of hospitals, medical offices, and healthcare facilities. Without the proper staffing or supplies, it can affect the staff’s ability to do their jobs.

How does accounting play into this scenario? With the proper accounting methods, administrators can set a budget to ensure that the medical staff can help their patients. The facility will have enough supplies and equipment to give proper medical treatment to their patients. Plus, there will be enough nurses, doctors, and other medical personnel on staff.

A healthcare budget goes beyond the necessary supplies, equipment, and staffing. When there is no budget in place, it can impact all aspects of healthcare. Patient satisfaction can be affected by poor accounting. If you cannot offer the proper services, they will go elsewhere for their healthcare needs.

Proper accounting can also impact the facility’s life. Any healthcare facility that doesn’t adequately monitor its money flow or set a budget will not be in business for long. Accounting helps to bill clients, process claims, and manage revenue cycles. Healthcare managers need to understand their accounting practices so that the facility can bring in revenue to support a long-term operation.

Accounting practices can also maintain compliance with regulatory agencies. Healthcare facilities need to follow strict guidelines and regulations, including specific tax laws. For example, the Internal Revenue Service specifies that Form 990 must be filed for each tax year. If the forms are not filed or have incorrect information, the facility could face fines.

Generally Accepted Accounting Principles (GAAP)

When establishing an accounting system for a hospital, that system must adhere to the Generally Accepted Accounting Principles (GAAP). There are universal rules of accounting that are used in many industries, including hospitals. All of these procedures and standards help maintain consistency in reports and statements. GAAP covers balance sheet classification, materiality, and revenue recognition. The goal of GAAP is to ensure financial statements are comparable, complete, and consistent. For seamless management, a few essential elements need to be followed. These principles include:

• Principle of Regularity – adhering to GAAP regulations and rules
• Principle of Consistency – applying the same standards for the reporting process
• Principle of Sincerity – providing an accurate and impartial depiction of a financial situation
• Principle of Permanence of Methods – giving consistent financial reporting
• Principle of Non-Compensation – reporting both positives and negatives without compensation
• Principle of Prudence – emphasizing fact-based financial data representation not clouded by speculation
• Principle of Continuity – assuming the business will continue to operate while valuing assets
• Principle of Periodicity – reporting revenue in its relevant accounting period
• Principle of Materiality – fully disclosing all accounting information and financial data in reports
• Principle of Utmost Good Faith – remaining honest in all transactions

Now that you understand GAAP, it is time to find the best accounting method. GAAP can help the medical facility’s planning, controlling, organizing, and decision-making processes. You can handle these accounting measures by yourself or hire a company specializing in small business accounting services to adhere to these principles.

In the healthcare industry, accrual accounting is the standard. With that, all expenses and incomes are recognized when they happen rather than when the funds change hands. Accrual accounting can accurately reflect the current financial health of the facility.

Medical Offices and Accounting

A proper accounting system is essential for the success of any medical office or healthcare faculty. When all of the guidelines by GAAP are followed, it can save money by eliminating any fines or charges. In addition to that, it can help boost the reputation of the medical office. The number one goal of a medical office is to treat the patient and deliver care that meets specific standards. A medical office needs to provide cost-effective treatment for the patients. Accounting helps patients receive exceptional care without breaking their budgets.

Accounting can help manage payments, income, expenses, and taxes with revenue cycle management. Without these funds, the medical office could not treat their patients. Revenue cycle management looks at payments, medical claims, and revenue generation. In other words, it manages the patient’s revenue cycle in the medical office. Accounting for medical offices focuses on:

• Collecting the co-pay
• Determining patient financial eligibility
• Collecting all payments
• Tracking claims
• Following up on denied claims
• Coding all billing correctly

You might think that all healthcare accounting is the same, but medical offices and hospitals have unique financial considerations.

Hospitals and Accounting

Hospitals have a few special considerations for their accounting needs, especially their accounts receivable. They can be paid by private insurers, patients, charitable organizations, or government programs. Payment terms can vary, and there are numerous ways to bill for services. All hospitals must track this money and allocate the payments to the proper accounts.

These hospitals also need to handle credits that can occur on an account. In some cases, the patient may have a credit due to a billing error, insurance claim adjustment, or overpayment of the bills. Hospitals must also use allowances to keep track of their accounting statements. An allowance is a separate line that adjusts revenue to what the hospital expects to collect from the bill. Accounting can organize all of the hospital’s revenue streams, credits, and billing.

Healthcare Accounting Is Complicated

While healthcare accounting is necessary, it can be challenging to do without the proper help. At TMD Accounting, we have been in business for over 40 years. Our accounting firm is a family-owned company that understands the needs of small and big businesses. If you are a healthcare facility, medical office, or hospital needing accounting, payroll, or tax help, we are there for you.

Need an accountant for your small business? Schedule a consultation at 856-228-2205.