Financial Considerations When Working From Home
Updated on: by FStewart
There are many financial considerations when working from home, but there may be some that you do not think to consider on the front end. In fact, you may not consider them until you find yourself needing the information and not able to find it quickly and easily.
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Most often the information is available, but it can be very difficult to pull together in a useable format. You may need this information for tax purposes, if you ever choose to sell your business, or for any number of other reasons. How do you save yourself time and very possibly money by being prepared ahead of time?
Research the Tax Law and Prepare
Research the tax implication of what you are doing before you ever start. If you are an employee, it will be taken care of most likely. However, if you are a contractor or a sole proprietor, you are going to play by different rules, and you need to know those rule.
For example, as a freelancer, I receive money from a lot of different clients. If any of these clients pay me more than $600 in a year, they will send me a 1099, and they will also send one to the IRS. The IRS now knows I received that income.
Here is the kicker. I technically should still claim any income I made from any client that was less than $600. Theoretically, I could make thousands of dollars, and if I do not make more than $600 with any one client then I will not get any 1099s, and neither will the IRS. Do I still owe the IRS? Yes. Will they ever know? Maybe. Maybe not.
The easiest way to handle this is to determine the percentage you will owe in taxes if taxes are not being withheld from your pay and withhold it yourself. Set it aside in a separate account and you will be ready to roll when tax time comes. If you hold out too much, you get a bonus at the end.
Save emails. Save check stubs. Keep a spreadsheet with each client and how much they pay. Save invoices. Keep tabs on PayPal if you are paid that way. Do not count on anyone else to do the record keeping. Even if you are supposed to get a 1099 or a W-2 or whatever, keep your own records in whatever way works best for you. You will be glad you did. It may be as simple as Excel or QuickBooks, or as complicated as outsourcing your bookkeeping, but be certain you do it.
If you grow quickly, you may be quickly overwhelmed trying to keep up with who has paid, who still owes, and who ordered what. Save yourself much trouble by setting up at system on the front end, then you can tweak it as needed.
While this does not have to be done immediately or even before starting the business, you really do want to handle it sooner rather than later. Set up a separate bank account for your business. It will be so much easier to manage and track business income and expenses, and you can always “pay yourself” from that account. Keeping business money and personal money mingled is not all it is cracked up to be.
Some of this seems like a no brainer, but sometimes businesses grow slowly out of hobbies, or from just some side work here and there to more and more. You may not even realize you have a business until this all almost too overwhelming to consider. Thinking about these things before a business gets too busy is always a good thing.
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