You didn’t set out on your own to chase down invoices and create intense spreadsheets. But like it or not, bookkeeping is an essential component of a thriving business.
Bookkeeping is the recording of a company’s financial transactions. With proper bookkeeping, companies can track this information and use it to make operating, investing, and financing decisions. It’s also essential to stay on top of your work-related expenses so that you can deduct them on your taxes, which could potentially save you thousands of dollars . (Related: How to File Self-Employment Taxes: A Step-By-Step Guide.)
If you’re not an Excel ninja, balancing your books may seem overwhelming. That’s why Wingspan built an interface that connects to your accounts and automatically scans for possible deductions. It also shows you a real-time profit and loss statement and tells you how much money you need to set aside for federal and state income taxes, ensuring that you make your estimated quarterly tax payments in full and on time.
We’ve answered the most common questions about bookkeeping below.
What’s the Difference Between Bookkeeping and Accounting?
Bookkeeping involves the recording, daily, of a company’s financial transactions. Accounting is the process of summarizing, interpreting, and communicating financial transactions.
How Much Should I Be Setting Aside for Taxes?
Tax professionals recommend setting aside at least 25% to 30% of your income. Fifteen percent covers Social Security and Medicare, while the other 15-ish covers the self-employment tax.
You may also need to put aside quarterly taxes for your state. (Note that there are seven states with no state income tax).
What Happens if I Underreport My Income?
Don’t try this at home. If the IRS discovers unreported income, they may charge interest on the unpaid taxes and can impose additional penalties.
How Do I Track My Expenses?
You can deduct the cost of anything that’s necessary for your business, including the cost of membership dues to professional organizations and office supplies. Other commonly overlooked deductions include the cost of travel and a percentage of any drinks or meals you order while meeting with clients. If you’re not sure if something counts as a business expense, ask a tax professional.
Wingspan can help with more than just bookkeeping. Memberships also come with an invoicing service, making them a complete billing department for your self-employed powerhouse.
You Might Also Like: