If you work as an independent contractor, even if you don't have an official business setup, you are still essentially running a business where you are selling your services. As an independent contractor, you should follow many of the same bookkeeping practices that small businesses follow. Doing so will help you more effectively keep track of your income and expenses, and it will help you more accurately pay taxes.
Set Up A Business Account
The first thing you need to do is stop paying yourself by depositing money directly into your personal checking account. Instead, deposit all the money you make into an account that is just set up for business. Keep a set amount of money in your business account to cover monthly business expenses, and use your business account to pay for any business expenses that come up. This will make it easier for you to keep track of the expenses that you can write off as an independent contractor.
Pay Yourself Out Of Your Business Account
Second, use your business account to pay yourself. When you put all earnings into a business account, you can set up regular paydays for yourself. You can pay yourself once a week, twice a month, or whatever payment schedule works for your budget. When you pay yourself, make sure that you set aside a percentage of your paycheck in your business account to pay for your quarterly taxes. Having an account where you keep your money for your quarterly taxes will make it easier for you to save up and make your quarterly tax payments on time throughout the year. You need to make your quarterly tax payments on a regular basis, in order to avoid paying fines at tax time.
Keep Track of Receipts
Although having a business account will help you keep better track of your expenses, you still need to do a little more legwork. You need to make sure that you save you receipts, as well. You need to have receipts to back up your business expenses. There are lots of apps that you can use to take pictures and store your receipts, or you can make copies of your receipts, and keep paper files for yourself. If you keep paper files, you will want to make copies of all your receipts, as the ink on receipts quickly fades away.
As an independent contractor, you need to make sure that you keep your accounts in order to make sure that you set aside the right amount for your quarterly tax payments, keep track of expenses, and set up a regular payday for yourself.