If your employee is only generating billable hours per week, a contractor is even cheaper. If you’re working with someone in a different country, it’s much easier to contract the work. You can hire international employees by using an EOR (Employee of Record) or PEO (Professional Employer Organization). If you are a bookkeeper, you may want to hire another bookkeeper to handle the client work, giving you more time to grow your business. Paying taxes and having accurate snapshots of what you are estimated to pay in taxes The Role of Construction Bookkeeping in Improving Business Efficiency helps a lot.

• They will better understand how to charge for their services by understanding their expenses.
• The business they work for will withhold and report a portion of the employee’s wages.
• You might also want to think about what you really need as a business to see if their services are in line with your needs.
• You can usually ask for references of customers similar to you, so you can get an honest picture of what it’s like working with that firm.
• The basic contract is a fantastic place to start if you’re looking for a solid template contract for an independent contractor arrangement.

Reconcile Bank and Supplier Statements

Keeping track of taxable income is an important aspect of bookkeeping for independent contractors. This includes recording all clients’ income and any other taxable income sources. This information is critical for preparing tax returns and accurately reporting your taxable income.

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If you do not file your profit and expenses, you are putting yourself at risk of being audited by the IRS. No matter how successful you currently feel as you are an independent contractor, it would be beneficial if you looked ahead. No matter how big or small your business is, you must keep track of every expense. If there is an audit, you won’t be able to support your expenditures if you don’t have the necessary paperwork.

• And, since you’re so generous, you’d want to buy your employee a new computer.
• This involves comparing the transactions recorded in your bookkeeping system with the transactions recorded by your bank.
• Using accounting software like Zero, Wave, or Freshbooks, will allow you to reconcile your bank accounts quickly.
• Since some bookkeeping firms also employ accountants, they may be able to handle your tax filing—and other accountant duties—in-house.
• If you do not have the documentation, you cannot back up your costs if there is an audit.

What Makes Independent Contractors Successful?

Being an accountant usually involves a higher level of interpreting and forecasting numbers than bookkeepers, who mainly just keep the records. Become familiar with the prospective bookkeeper’s qualifications and credentials. Since nearly anyone can call themselves a bookkeeper, you’ll want to ask about their background. Many bookkeepers will have a degree in accounting, be a CPA, or even be registered with the Tax Practitioners Board. You can also ask friends or colleagues who have utilized bookkeepers for their businesses.

You may also feel like it’s time to take a break from the grind and focus on other things that your business or clients need. Accountants have more education under their belts, and with additional qualifications come higher rates. Bookkeeping requires fewer skills and work, so hiring a bookkeeper instead of an accountant can save you money in the long run.

• However, you can take a “completed contract” approach as well, which involves calculating taxes owed on each contract.
• Look for someone with the right experience and qualifications, but also someone who communicates well and fits with your company culture.
• In both cases, if you use dedicated bookkeeping software, you should ensure that your bookkeeper uses the same brand.
• Paying in your estimated taxes every month or quarter will help you avoid unexpected tax liability.
• Your company may be growing, and you’re having trouble keeping track of your finances.
• So just replace the word “bookkeeper” with “designer”, “plumber”, or whatever service you sell.
• You’ll also want to categorize these expenses by service, and by individual job so you can easily track how much money came in as well as how much you spent on expenses.

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People who work routine 8-5 jobs for a company are classified as an employee. The business they work for will withhold and report a portion of the employee’s wages. A percentage of each check is withheld to fund unemployment, social security, Medicare, and tax liability. Each year, all employee taxable income is proven on a W-2 form and filed to the IRS. Some bookkeepers do provide tax preparation services, but usually, they’ll be doing it from their own experience, as not all bookkeepers are professional tax advisors. Various bookkeeping methods are available, including manual, spreadsheet-based, and cloud-based bookkeeping software.