Some of the developers and designers who I admire the most in the wider development community are really good about being open about various aspects of their businesses. Sometimes they talk about their challenges, sometimes they do financial reports, and other times they cover different topics.

I’ve slowly been trying to share some of my own experience as it relates to self-employment. It’s not meant to be prescriptive or meant to be a guide on how you should do anything, but it’s something that I hope proves useful if for no other reason than to show what’s worked for me.

So in this post, I thought I’d share how I’ve gone about managing my books – or how I’ve done self-employment accounting – since working out of Pressware.

Self-Employment Accounting

Before getting into how I do things now, it’s worth noting that my first year in business I ended up doing everything myself. Part of this was being inexperienced, part of this was being naive, and part of it was because I figured it’s my business so I should run all aspects of it.

#LOL. Youths.

But then tax time came – to say that that resulted in a little bit of sticker shock would be an understatement.

Tax Season Selfie

Tax Season Selfie

Luckily, there were (and are) enough people in my life that helped to share the significance of saving when you go into business for yourself so the bill was covered. Still, when you’re used to having your payroll taxes deducted as well as all of the other items such as FICA, et al., you neglect to research just how much you should be withholding.

So from there, I went with a two-step system in order to prevent anymore surprises like that from happening again.

Software

To be clear, I’ve kept books ever since the first time I took on a client contract – even before I was self-employed. To say that I went with a two-step process is a little misleading.

I more or less went with, say, a-step-and-a-half.

First, I continued to keep books using my software of choice – FreshBooks – but I got more organized with how I was tracking things so when it came time to do expense reports, review the P&L and so on, it was less tedious than prior years.

Freshbooks

But I didn’t stop there. And when people ask me what the smartest thing I’ve done since being in business for myself I can only [obviously] answer what I’ve done up to this point.

It’s an easy answer, though: Hire a CPA.

CPA

Even when I was working for someone else, I always had a CPA taking care of my yearly tax filings to make sure sure that everything was done right.

Sure, I know plenty of people – both family and friends – who do taxes on their own. I think that’s awesome – it can save you money, there’s software that’s available to help you, and it makes it much easier to do it than it did 10 years ago.

All I’m saying is to each his or her own.

But when it comes to running a business – especially when you’re trying to focus on the business to streamline it, refine it, and even grow it – handling all of the details of taxes can become a distraction.

So after talking with those who are older and wiser than me, I opted to hire the same CPA my parents have used for their business for the past two decades (or more) and it’s been the best thing I’ve done.

Not only does it make sure the necessary amount of taxes are taken out for each month’s paycheck (and no more), it also helps to have someone on call for when you have questions about things related to subcontractors, distributions, certain types of business expenses, questions regarding retirement, and so on.

Ultimately, it’s one of those things that I recommend to anyone who asks my advice regarding starting their own business. It’s one thing that I wish I’d done sooner rather than later.

There’s More To It

Anyway, a lot of this is obviously related to the United States and how our government is setup regarding taxes, businesses, and so on. Furthermore, it also depends on how you’re doing business – are you incorporated, are you a C-corp, an S-corp, an LLC, and sole proprietor, etc., etc.

To that end, the information here is unique to my situation and likely won’t necessarily be relevant to what you’re doing. If I had to generalize it, though, I’d say:

  1. Keep very detailed books. Log every transaction and categorize appropriately.
  2. Have an expert in the tax code prepare your taxes.

Then again, maybe this isn’t the best course of action for what you’re doing. Either way, just make sure that when it comes to managing the finances of you’re business, you’ve got someone with more experience than you helping you out.

It can go a long way in saving money and preventing headaches.

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Join the conversation! 6 Comments

  1. I’ve been a Freshbooks user forever, but the glaring omission in their accounting services is quarterly estimated tax calculation and filing. It seems like it shouldn’t be difficult to automate (15% of your last quarters’ gross revenue), but I’m not aware of any services that do it. Outright does the estimate but not the filing, and I lost interest in them when they were acquired by GoDaddy. Freshbooks has really tried to cater to accountants so you can give them access to your data, but I haven’t seen individuals or services that want to do business this way — e.g. send me a reminder to pull in and categorize all expenses and income by a certain deadline and that’s it. If you or anyone else has figured out a good practice for quarterly estimated tax please share.

    • I stuck with Outright after they were acquired and, while new features have totally stalled as expected, it still works well. I’ve tried a LOT of other accounting software but nothing else can sync with my bank accounts and auto-categorize income and expenses the way it can. Freshbooks doesn’t know what to do with income that isn’t filtered through a Freshbooks invoice, which made it a dealbreaker for me.

      I’m always glad I stuck with Outright at the end of the year when all I have to do is check the categorization of my income and expenses, then save my Schedule C worksheet. I haven’t been able to find anything that can top it, though I keep looking since I don’t like having any part of my business tied to GoDaddy.

      • Thanks, that’s helpful.

      • > I stuck with Outright after they were acquired and, while new features have totally stalled as expected, it still works well.

        That’s nice to hear. I’m a big proponent of people just using the software that makes their lives easier whatever it may be.

        > Freshbooks doesn’t know what to do with income that isn’t filtered through a Freshbooks invoice, which made it a dealbreaker for me.

        I have to re-categorize things from FreshBooks but I’m okay doing that. I haven’t done anything outside of a FreshBook invoice in I don’t know how long so it’s been fine for me – but that ties back in to my first point, too :).

        > I don’t like having any part of my business tied to GoDaddy.

        They’ve let such a long standing stain on everyone despite their efforts to turn the business around. They’ve their work cut out for them – I just hope they can eventually become a better company with a better reputation.

        — Tom

    • > I’ve been a Freshbooks user forever, but the glaring omission in their accounting services is quarterly estimated tax calculation and filing. It seems like it shouldn’t be difficult to automate (15% of your last quarters’ gross revenue), but I’m not aware of any services that do it.

      Understood.

      This is where the CPA comes in handy for me. I just make sure to keep super detailed books then I just hand them over to him.

      Over the past few years, we’ve worked out a monthly salary, withholdings, and then room for expenses and distributions. It’s taken some time but I’m happy with where we are for now.

      > Freshbooks has really tried to cater to accountants so you can give them access to your data, but I haven’t seen individuals or services that want to do business this way — e.g. send me a reminder to pull in and categorize all expenses and income by a certain deadline and that’s it.

      I do like what it pulls in, but I still have to recategorize. I actually take one day a month to do all of my bookkeeping rather than spreading it out during my development and business-related days.

      I do like the reports they provide and how ‘accountant-friendly’ they are in that respect.

      > If you or anyone else has figured out a good practice for quarterly estimated tax please share.

      Sadly, I don’t know. I did estimated taxes for one year before moving to monthly withholdings. The quarterly system was alright, but I still ended up with a refund. I know people like that, but all that means is you’ve given too much during the year.

      On top of the that, the withholding was based on the previous years income so sometimes I was paying out more per quarter than I needed, sometimes less.

      Tax codes. Bleh.

      — Tom

  2. Totally agree! A good CPA is worth their weight in gold. They shouldn’t really even cost you any money, because they’ll find items and save you so much time that they pay for themselves and more. Some years, many, many times over, and that’s not just for business purposes but also personal, if your finances are a little more complex than just a 1040EZ. But staying organized is key. No accountant wants someone to dump a pile of receipts and scratch paper on their desk, and you surely don’t want to pay their rates to sort through your crap for you that you should have organized yourself. (“you” being the general readership, of course; not “you, Tom” personally. :-) For some reason I’m positive you’re very organized.)

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