MeKenna and Kat are each on the Assist staff for YNAB. Along with working for YNAB, they’re each facet hustlers: freelance lighting designer (MeKenna) and freelance actor/performer (Kat). Put their recommendations for managing facet hustle bills and earnings in YNAB into motion in your individual finances to remove a few of that tax-time stress!
No matter what sort of work your facet hustle entails, discovering the proper processes, instruments, or programs to assist could make life an entire lot simpler. Whereas we each handle our facet hustles a bit in another way in our budgets, we agree that we couldn’t think about managing the bills and earnings with out YNAB.
One factor we do have in widespread is that each one our facet hustle earnings and bills go into and are available out of our private accounts. This works greatest for our private setup, however you probably have a separate checking account for your corporation, a separate enterprise finances is the best way to go! Try this hyperlink to our Small Enterprise touchdown web page with numerous sources on establishing a separate enterprise finances.
Learn how to Handle Tax-Deductible Bills
Possibility One: Tagging
Kat’s method:
I took the listing of deductible expense classes I received from my accountant and made observe of those that apply to me. Once I spend cash for the enterprise, I add my enterprise tag for the yr (#katwork22) and the spending kind to the memo discipline. For me, that’s subscriptions, coaching, transportation, meals, provides, costumes, and journey.
I add the tag and the spending kind to the memo discipline of any deductible spending. If I purchased a number of issues in that buy and solely a few of them are deductible, I’ll cut up the transaction and add the knowledge solely to the memo discipline of the corresponding cut up. For recurring deductible bills (subscriptions, cellphone payments, and so forth.), I ensure that the tag is within the memo discipline of the scheduled repeating transaction for extra automation. When the brand new yr comes round and the January transaction drops in with the previous yr’s date, I simply have to recollect to replace each the January model of the transaction and the repeating future transaction with the brand new date tag!
The gorgeous half about this for me is that the tax class doesn’t should correspond with the spending class in my finances. I’d categorize a workshop below a enterprise class like Performing Bills, however I’d categorize a fancy dress piece I purchased to my common Clothes class. I’d wish to fund that parking cost in my regular Transportation class, however I wish to be certain that to jot down it off on my taxes.
Possibility Two: Flagging
Now that you could add customized names to flags, they’re additionally a terrific different to the facet hustle tag. You should utilize one coloration for all tax-deductible bills or you should use one for every kind of spending: pink could possibly be facet hustle meals, yellow could possibly be facet hustle journey, and so forth. The one draw back of utilizing flags is that you could’t flag a cut up portion of a transaction, solely the complete transaction. When you use cut up transactions to your tax-deductible spending, the tags within the memo discipline are a greater option to go.
Tax Preparation
When tax time comes round, I seek for every kind of spending and the tag – “#katwork22 coaching.” For the best method, I can choose all of the transactions and the Chosen Complete on the prime is what I spent in that class. I can add that to the spreadsheet I share with my accountant.
Alternatively, I can seek for simply the enterprise tag (in my case, #katwork22), choose all of the transactions in all these spending sorts, and Export Chosen Transactions to a spreadsheet app. From there, I can type by the completely different tax deductible classes and ship that alongside to my accountant.
When you select to make use of flags, you’ll be able to seek for flags and comply with the identical directions as above!
What to do if one yr’s spending is distributed over a couple of finances
Possibly you determined to do a recent begin mid-year. Or perhaps you’re like Kat — you filed for divorce in the midst of the yr and needed to create a brand new finances with new accounts in July! Regardless of the rationale, typically having a couple of finances that holds transactions in a single yr is unavoidable. Right here’s how you can merge the information into one place!
First, you’ll go to All Accounts and seek for your corporation tag. Choose all of the transactions for that tax yr and use Export Chosen Transactions to create a CSV file of simply these transactions. Do the identical factor within the different finances(s). Whenever you’re completed, you’ll have two or extra CSV information with the related spending transactions in them.
You possibly can choose one file to be the primary file. Subsequent, open the opposite one, copy all of the transactions (with out the header) from that finances after which paste all of the transactions into the primary file. Repeat till all transactions for that yr are in a single file. From there, you’ll be able to delete columns you don’t want, type and filter as desired.
Possibility Three: 1099 Class Group
MeKenna’s method:
I’ve a class group known as “1099” and inside it are all 1099-related classes. Taxes, Tithing, Dropbox, Adobe Suite Subscriptions, Tech & Gear, Journey for Work, Tax Accountant, Reimbursements, and Miscellaneous. You possibly can customise this to be your work-related classes, or preserve all of them contained inside your present finances setup like Kat does. Or some mixture of each!
Right here’s my setup:
Categorizing and Monitoring Aspect Hustle Earnings
1099 earnings isn’t taxed till you file on the finish of the yr, which might trigger two challenges: not having sufficient put aside when it comes time to pay taxes and inflated earnings knowledge in YNAB. If you’re each an worker and an unbiased contractor, the paychecks out of your employer are the post-tax quantity however your facet hustle funds are the pre-taxed quantity. Kat and MeKenna have two completely different approaches to those challenges!
MeKenna’s method:
In my finances, I wish to separate my 1099 earnings and the taxes that I take out of it, so I exploit a cut up transaction. The payee is the title of the earnings supply and I click on Break up within the class discipline. I personally wish to put aside 20% for taxes, so if the bill is for $2,000, I categorize $1,600 as “Influx: Prepared To Assign” and $400 to my Tax class.
That manner, my Earnings v. Expense report exhibits my approximate internet earnings as a substitute of gross earnings for simply my 1099 pay. And it additionally helps me keep in mind to put aside cash for self-employment taxes!
Kat’s method:
The vast majority of my facet hustle earnings is available in a couple of annual checks. I’m not too anxious concerning the accuracy of my earnings knowledge, so I categorize the complete influx quantity to Influx: Able to Assign. Then I assign a piece of it to the tax class to ensure I’ve some set-aside. I set a Goal on my tax class so I put aside about the identical quantity I needed to pay final yr. As soon as I’ve absolutely funded that focus on for the yr, the remainder of the 1099 earnings is free to be assigned wherever else.
When deciding how you can categorize your facet hustle earnings, take into account that any cash inflowed right into a class gained’t present as earnings in reviews. In case your objective is to your earnings in YNAB to indicate as internet earnings, splitting a few of the inflows to the taxes class will extra precisely replicate that internet earnings.
When you wish to see your earnings by earnings supply/shopper, you should use distinct payees for every and test the Earnings v. Expense report back to see how a lot you had been paid by every shopper.
Try extra Quick Tax Time Prep Suggestions with YNAB
If You Have Separate Enterprise Financial institution Accounts
As talked about above, you probably have separate accounts for your corporation, you’ll wish to add them to a separate enterprise finances, relatively than to your private finances. That manner, you’ll have the ability to separate private and enterprise earnings. You’ll additionally have the ability to distinguish between enterprise and private bills extra simply.
We hope we’ve given you some methods to use to this yr’s finances (or when you’re like a few of us, you might return and tag all of final yr’s bills to make tax time simpler!)
Don’t hesitate to attain out to the Assist staff you probably have any questions on setting this up in your finances!
Are you a freelancer who stumbled upon this submit whereas trying to find a greater option to handle your funds? With 4 Guidelines, a strong library of free sources, and an award-winning cash administration app, YNAB has every thing you’ll want to take management of your monetary life and luxuriate in much less cash stress. Attempt it free of charge in the present day, no bank card required!