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If you're a freelancer or a self-employed business owner, keeping track of your income and expenses is crucial. Not only does it help you stay organized, but it also ensures that you're accurately reporting your finances to the IRS come tax season. This is where a self-employment ledger comes in handy.
A self-employment ledger is essentially a record of all your business income and expenses. In the olden days, this would have taken the form of a handwritten ledger book. Nowadays, your best option is to use financial software that consolidates all your transactions in one place.
That’s where we come in. Lunafi acts as a freelance income tracker, business expense categorizer, and tax liability predictor all in one. In this blog, we’ll explore how you can use Lunafi to track your finances and ensure you're claiming all the deductions you're entitled to. But even if you’re not a Lunafi user, these best practices will help you stay on top of your finances and make tax season a breeze.
Managing your finances – on top of all your client work and lead hunting – can be challenging. However, having a freelance income tracker is essential for your financial stability and growth.
A freelance income tracker can help you keep accurate records, better budget, plan for taxes, and simplify bookkeeping. Whether you use a spreadsheet, accounting software, or a mobile app, make sure to track your income and expenses regularly to ensure that your finances are in order.
Here's are the benefits of using financial software as your modern self-employment ledger:
By tracking your income and expenses, you can keep accurate financial records, which are crucial when filing your taxes. Maintaining accurate records also makes it easier to prepare financial statements, which are necessary when applying for loans or financing.
When you have a clear picture of your income and expenses, you can create a budget that helps you manage your finances better. Lunafi automatically categorizes expenses and so you can easily identify areas where you might reduce spending. This helps you plan for the future and ensure that you have enough funds to cover any unexpected expenses.
Self-employment taxes, which can be confusing and overwhelming. By tracking your income and expenses, you can estimate your tax liability and plan accordingly. You can also identify tax deductions and credits that you may be eligible for, which can help reduce your tax burden. Simply scroll to the bottom ofyou Lunafi dashboard and you’ll see your tax liability for the current year based on all business transactions to date. Note that if you haven’t classified all business expenses and earnings, this figure may not be entirely accurate.
Having a freelance income tracker like Lunafi makes it easier to create and send invoices directly to clients. Our software will send both you and the client reminders to ensure you get paid on time.
Lunafi also helps you track business expenses and discover potential deductions you didn’t know were there. You can even create rules so that transactions from/to a specific vendor are always classified as a particular expense category (like “Office Supplies”). This ensures your records – and estimated taxes – are alway up to date.
Handwritten ledgers – and even spreadsheets – are prone to human error. That's why selecting the best financial software for your freelance business can be a game changer.
Lunafi is a self-employment ledger designed with freelancers, gig workers, consultants, and creatives in mind. Not only can we helps you track your income, expenses, and tax liability – we also empower you to set and surpass your financial goals with an easy-to-use app and live graphs to visualize your financial standing.
With these 5 steps, you can set goals for your income and expenses, track your progress over time, and make data-driven decisions to grow your business. Here's how:
Freelancers who use their personal bank account to send and receive business transactions create countless hours of extra work for themselves each year. If you haven’t already, we strongly recommend that you open a business bank account. This will help you keep your personal and business finances separate, making it easier to track your income and expenses.
Lunafi makes it easy to visualize your financial progress with our Profit Progress graph. On your Lunafi dashboard, it’s one of the first graphs you’ll see. Right below this bar graph, you can set an annual income goal and Lunafi will update your progress with every income transaction.
Additionally, the Finances section displays your monthly profit as compared to the previous month so you can see your cash flow at a glance.
If you work with multiple clients, it can be tricky to track of much you're earning from each one. Lunafi makes it easy to see your income breakdown by client, so you can make sure you’re not putting too many eggs in one basket.
Simply create a profile for each client and assign income transactions to that profile. You can even create a rule so all transactions from that business will be assigned to the corresponding client profile. To get an overview of this client income, go to Transactions and select your date range (yearly, quarterly, or monthly). A bar graph will appear that shows how your client earnings stack up. This data can informm your marketing strategy by indicating whether you need to diversify your portfolio, pursue more clients like your best paying ones, etc.
Most financial software will include an invoicing feature. Lunafi’s allows you to use existing client profiles to automate sending invoices and payment reminders directly to your clients. Our invoice dashboard also enables you to view outstanding vs. paid invoices, and save drafts. Learn more pro tips on how to invoice as a freelancer here.
Lunafi provides custom financial reports – like P&L statements or expense reports – that help you make data-driven decisions to grow your business. Take the time to review these reports on a monthly (or at least quarterly) basis so you can adjust your client acquisition, marketing, or pricing strategies in order to meet your financial goals.
Using a self-employment ledger, whether it's a spreadsheet or sophisticated financial software, can help you stay organized throughout the year so you aren’t overwhelmed come tax season. Even with this software, you should keep digital copies of receipts and invoices for your own records. The IRS recommends holding onto records for at least 3 years. This will make it easier to calculate your net income and claim deductions when tax season comes around.
If you're new to freelancing or self-employment, it may take some time to get used to tracking your income and expenses. But the benefits of staying organized and having accurate financial records are worth the effort.
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