Basic accounting tips for the self-employed retiree
Self employed accounting practices need to be just as diligent as other employer accounting practices. Accuracy and complete reporting is critical in order to get the best results, and if you need accounting help, be sure to find it before you run into problems with government agencies like the IRS.
Persons who are self employed should make use of some basic self employed accounting tips from the start of their independent work.
- Keep accurate records: record all business expenses and income as they accrue.
- Learn what must be reported to the Internal Revenue Service to avoid future problems.
- Write legibly: be sure your numbers are easy to read and that sums are correctly totaled.
- Use a filing system: forget the "box" system because it's too difficult to process.
- Use basic accounting help tools: ledger books, ledger paper, file boxes, folders and a calculator.
- If you have any reading vision problems, use magnifier reading glasses.
Keeping a simple balance sheet may work for smaller jobs or small business operations. Be sure to record any work-related income, expenses, investments, employee expense, medical/dental expenses, licensing fees and other work-related expenditures. You can use these figures when calculating yearly taxes and deductions. This can be as simple as two columns:
- Expenses. If you are running a small business, you can divide expenses into categories like: supplies, equipment, postage, advertising, labor and rental of office space. Income can be tracked by source, amount and dates.
There are two simple ways to keep your books; most retirees will use the cash basis method:
- Cash Basis Accounting: You track expenses and income as they are actually used or received.
- Accrual Basis Accounting: Expenses are tracked when they are incurred but not necessarily paid for; likewise for payments/income -- recorded when a job is completed even if the customer has not yet paid.
If you have legal expenses for setting up your sole proprietorship, partnership, or small business structure, these are deductible. It is well worth the initial investment to have professional legal and financial advice to get your work off to a good start. If you are working for some other company as a contract employee, they will report your income on a form 1099 to the IRS at the end of the year for any quarter in which you have earned over $600. Keep your own records to use for offsets against income, including any expenses for work equipment like uniforms, shoes, or vehicle expenses.
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