When you are self-employed, it can be incredibly rewarding. You set your hours, you get to be your boss, and you have the freedom to pursue whatever work you want to do. However, along with this freedom, you have higher responsibilities, especially when it comes to managing your finances. When you don’t have an employer who handles your taxes, payroll, and other financial tasks, you have to ensure you stay on top of your financial affairs.
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We’re going to have a look at some of the essential tips that you need to make sure you are looking after your finances when you are self-employed:
Separate Your Personal And Business Finances
One of the first things that you need to do is make sure that you are separating your personal and business finances. Not doing this is a common mistake that many self-employed people make, especially when they are first starting. When you mix your personal and business finances, it can lead to a lot of confusion and make it very difficult for you to track your income expenses, which can make it extremely challenging when it comes to tax reporting. In order to avoid this, you should have a separate business bank account where you can deposit all your income related to your employment. This account should be used for all your business expenses, software, office supplies, and more. When you separate these, it will make it much easier for you to track your actual earnings and deductions when it comes to filing your taxes.
Track Everything
You must track all of your financial transactions as a self-employed individual. This is because record keeping ensures that you are able to accurately report your earnings to the IRS and claim back any deductions or credits you are entitled to. You might want to think about using accounting software where you can automatically keep everything organized.
Apply For Your EIN
If you haven’t already, you need to think about applying for a federal employer identification number. EIN is similar to a social security number for your business, and the IRS uses it to track your tax responsibilities. You need to have an EIN if you are planning to open a business bank account to establish credit for your business or any employees. You can easily apply for an EIN for free, and it can be done online on the IRS website. If you need any help, you can get federal EIN online help, which can give you guidance on how you should complete the application process.
Conclusion
Managing your finances when you are self-employed is critical to your success. When you track and obtain a federal EIN, you are starting the foundations for having financial freedom and succeeding as a self-employed individual. With a little bit of planning and organization, you will be equipped and able to navigate the financial elements of self-employment and keep your business thriving. Make sure you follow these tips in this blog to ensure you are off to the right start with your self-employed journey.
