Very helpful, thanks for sharing! One question for you regarding your bookkeeping and the metrics you use for business planning. Since sole proprietors pay themselves through owner's draws, the "salary" does not show in business expenses--good for tax prep, but bad for calculating the true operating costs. Do you add up these costs outside of your accounting software? Or call them expenses and then clarify it with your accountant at tax time?
Hi Amy, I technically operate as an S corp so I do have payroll set up for myself and count it as a business expense. However, to your point, I still need to account for that expense although its typically variable depending on my revenue and what I'm looking to invest back into the company.
So to answer your question directly, I do account for a base salary in addition to what I determine "true expenses" as this post outlined. I hope this adds a bit of clarity.
Yes, thanks very much. I'll need to figure out a clean way to get my salary and taxes reflected on the P&L so that I can see my true operating costs--looking for a way to use my numbers to manage the business rather than just for tax day.
Absolutely. I think you'll find that it will never be a perfect system unless you are able and willing to commit to a single salary. Sometimes you make more or less but in many instances the benefit of freelancing is that when you have great months you can take a little extra out as a reward. Keep crushing, Amy!
Thank you for sharing and I love the role model that you present of saving for retirement. I appreciate you referencing software you use!
Very helpful, thanks for sharing! One question for you regarding your bookkeeping and the metrics you use for business planning. Since sole proprietors pay themselves through owner's draws, the "salary" does not show in business expenses--good for tax prep, but bad for calculating the true operating costs. Do you add up these costs outside of your accounting software? Or call them expenses and then clarify it with your accountant at tax time?
Hi Amy, I technically operate as an S corp so I do have payroll set up for myself and count it as a business expense. However, to your point, I still need to account for that expense although its typically variable depending on my revenue and what I'm looking to invest back into the company.
So to answer your question directly, I do account for a base salary in addition to what I determine "true expenses" as this post outlined. I hope this adds a bit of clarity.
- Nick
Yes, thanks very much. I'll need to figure out a clean way to get my salary and taxes reflected on the P&L so that I can see my true operating costs--looking for a way to use my numbers to manage the business rather than just for tax day.
Absolutely. I think you'll find that it will never be a perfect system unless you are able and willing to commit to a single salary. Sometimes you make more or less but in many instances the benefit of freelancing is that when you have great months you can take a little extra out as a reward. Keep crushing, Amy!
Thanks for the guidance!
Great article
Great post, Nick. I appreciate the transparency and detail. Starting out on my own freelancing journey, I find this article very timely and helpful!
Congratulations, Paul. I'm excited for you and your new journey. You've got this! Thanks for commenting.