In case you haven’t already heard, freelance writers are self-employed individuals who must keep track of their own income and expenses. Bookkeeping comes naturally to some people, while others — such as myself — must work at it. Unless you are an extremely profitable freelance writer, you don’t have your own accounting department that handles all of your bookkeeping for you, so you must learn how to do it yourself.
You don’t need a fancy accounting degree or expensive financial software in order to keep track of your income and expenses. All you really need to know is the first simple rule of bookkeeping: Write everything down! Keep records both in hard copy and on your computer and you virtually can do no wrong because there will always be a way to double-check your figures and to produce financial information when need be.
Bookkeeping Tip #1: Keep Business & Personal Receipts Separated
For tax purposes, you’ll need to keep track of your business receipts in order to itemize your deductions. Business receipts are the receipts for anything you purchase that pertains solely to your business. Writing supplies, electronic equipment and other business purchases should be kept separate from any personal things you need to acquire.
For example, let’s say you’re making a trip to the office supply store. For your business, you need copy paper, pens, pencils and manila folders, but you also need to purchase a calendar for your own personal use. When you check out of the store, ring the business purchases separately from the personal purchase so that you can keep your receipts separated. This will help enormously when cataloging your deductions and will also be beneficial if you should come under scrutiny by the IRS.
TIP:If you forget to purchase business and personal items separately (as I sometimes do), highlight the items which were purchased for your business and keep it with your business receipts. That way you won’t have to make guesses later.
Bookkeeping Tip #2: Write the Client or Publication Name on Project-Specific Receipts
Even if your memory is great, you can’t remember why and when you purchased everything for a specific project. To keep everything straight, record the client or publication name on receipts for project-specific receipts. This will help when it comes time to bill for expenses on a particular project and will ensure that you don’t make any mistakes. For example, if you have to purchase recording equipment to do interviews for a project, write the name of the project on the receipt for that equipment.
If you’re a hyper-organized freelance writer, you might also want to have separate folders or envelopes for project-specific receipts. A shoe box works great for this purpose — just line envelopes containing receipts in the shoe box so they can be found easily and quickly.
Bookkeeping Tip #3: Open a Business Checking Account
While you don’t need to open an actual business account — which usually requires a D.B.A. or similar business license — you should have a separate checking account for your business. This allows you to keep your business transactions completely separated from personal transactions, which will be enormously helpful should the IRS decide to audit your records.
If you don’t have the ability to open a second checking account, make sure that you request canceled checks from your bank. This usually costs a dollar or two per month, and it’s worth it to keep perfect records.
Bookkeeping Tip #3: Keep an Up-To-Date Income Spreadsheet
Some freelance writers prefer to update their income spreadsheets daily, while others (such as myself) do this at the end of the month. A spreadsheet allows you to keep track of every payment you receive, noting the person from whom the payment was given, the project for which you are being paid, the date of the payment and whether any balance remains on the account.
The more information you store on your income spreadsheet, the better, but make sure you note the amount of the payment and who was paying you. I also scan the checks, money orders and PayPal screen shots and staple them to the back of that month’s spreadsheet for added insurance.
Bookkeeping Tip #4: Keep an Up-To-Date Expense Spreadsheet
Freelance writers should make sure to keep track of expenses just as meticulously as they do their income. Keeping receipts is a great first step, but keeping a spreadsheet that correlates with those receipts is even better. It also ensures that you are keeping track of business expenses versus personal expenses. The spreadsheet should include the amount of each expense, the store or vendor it was purchased from, the nature of the expense and the date.
Tip: Number your receipts with the same number as the spreadsheet line of your expense report. This will allow you to find corresponding receipts quickly.
Bookkeeping Tip #5: Save Everything for Seven Years
Some freelance writers save their yearly bookkeeping records for up to ten years, but seven is the general rule. Audits by the IRS sometimes take place several years later, so you’ll need to keep everything for an extended period of time. I also like to save everything so that I can compare this year to last, and this year to ten years ago, but that’s my personal preference.
Since you’ll need someplace to store all of your bookkeeping records, I recommend purchasing several plastic containers for this purpose. You can store all of the information in the plastic containers without worrying about time and dust eating away your records. My office closet is full of these plastic containers, so make sure you have adequate room for storage.