Work Smarter – Not Harder

Basic Accounting Tips for Freelance Web Designers

How do you feel about accounting? How much do you even know about what kind of accounting records you need to keep? If you’re like most web designers, Bookkeeping isn’t your favorite part of freelancing.

But keeping accurate records is an important part of running a business. It’s so important, in fact, that keeping good accounting records sometimes means the difference between freelancing success and freelancing failure. Taxes are another reason why you need to keep good accounting records. If your records are sloppy, tax time will be a nightmare. (And you could wind up owing a lot of money.) In this post, we share basic tips that freelance web designers and other freelancers should know about accounting.

Track Your Income

You must record all freelancing income, no matter how small. When it is time to pay taxes, you need to report all income, even if you don’t receive a 1099 form from a client. Most freelancers who are sole proprietors (the most common form of freelancing business) will record income as they receive it. This is known as cash-basis accounting.

The alternative to tracking income on a cash basis is to track it on an accrual basis. Under an accrual basis, you recognize income as soon as you complete a project and bill a client. The income is considered accounts receivable until the client pays your bill when it is added to your cash account. (However, do not recognize income a second time when the client pays you.)

The most important thing to know here is that you must pick one method or the other and stick with it. If you recognize income on a cash basis one month, you can’t recognize it on an accrual basis the next. Very large businesses must use the accrual method.

Track Your Expenses

As a small business owner, you must also record all expenses related to your freelance web design business. Record expenses on either a cash (as you receive the money) or an accrual basis (as the expense is incurred). You must use the same basis to record expenses that you used to record income. Some freelancers are confused about what expenses they should record. A good rule of thumb is to record every expense that is specific to your freelancing business.

Set Money Aside for Taxes

One of the biggest surprises new freelance web designers face is the tax bill after their first year of freelancing.

If you’re coming from traditional employment, you may be used to having your employer withhold part of your pay to cover your income tax liability. This does not happen for freelancers. Not only that, the tax liability for freelancers also includes self-employment tax.

For the unprepared freelancer, the tax bill for the first year of freelancing can be in the thousands of dollars. That’s enough to put some new freelancers out of business.

Fortunately, it doesn’t have to be that way. Freelancers should arrange to pay estimated taxes quarterly to the IRS and to any local tax authorities. This divides what could be a huge tax bill into four more manageable pieces. Even if you end up owing at year-end, your tax liability won’t be as huge.

What If You Hired Someone?

Many freelancers hire other freelancers to work on specific projects during the year on a temporary contract basis. For example, a web designer might hire:

  • A virtual assistant to catch up on routine office tasks
  • A freelance writer to help write web copy for a large client
  • Another web designer to help them meet a tight deadline

As a small business owner, carefully track the amounts that you pay to others. In January, you will need to send out a 1099-Misc form to each independent contractor who received more than $600 from you.

Of course, if you hired employees during the year, you have additional responsibilities. You will be responsible for sending out a W-2 to each employee. You will also need to withhold payroll taxes during the year. If you hired employees for your web design business, I highly recommend that you get professional accounting advice.

Tips & Tricks

Also Interesting

Smart time tracking: Track your hours!

Have you ever wondered how your freelance time can be measured? Check out tips for how to track your hours when doing freelance work and what time tracking tools you can use.

Time Tracking

Efficient Time Management for Juggling Multiple Projects

Managing multiple projects simultaneously can be a daunting task. With competing deadlines, conflicting priorities, and limited resources, it’s easy to feel overwhelmed and struggle to maintain a sense of balance.


Go International in 6 Simple Steps

Going global with your business has never been easier: The Internet has blurred geographical borders; the numbers of international teams are rising. And yet, many entrepreneurs fear stepping across borders. Why?

Business Management Features The Future of Work

Work and Life Balance: No Holidays for Entrepreneurs?

Work and life balance is one of the hardest issues small business owners face. Find out how to keep entrepreneurial lifestyle and make sure you’ll take some days off. Small business owners can’t be good at everything, but many are particularly bad at taking time off.

Articles Business Management

Time and attendance challenge! Flextime: the good and the bad

Is your business up for the ultimate Time and attendance challenge? Make Flex Time work! What is Flex Time? A flex time policy is a flexible time scheme used by companies to organize working hours.

Articles Tips & Tricks

6 Features Any Smart Timesheet App Needs. Does Yours Have Them?

A smart timesheet app is not just about tracking your hours. It is about helping you and your team to work more efficiently. About making the best of the time we are working – and creating a better work-life balance.

The Future of Work Time Tracking

One tool, everything under control

No credit card required. Cancel anytime.