Accounting for Consultants

Overview

• Introduction to accounting and bookkeeping for consultants
• Use of QuickBooks Online (QBO) for managing finances
• Discussion on getting paid, handling taxes, benefits, and business expenses

Accounting vs. Bookkeeping

• Accounting: Summarizing, analyzing, and communicating financial transactions; reporting to IRS and state authorities
• Bookkeeping: Recording financial transactions; preparing data for financial statements and tax filings

Basic Accounting Concepts

• Debits and Credits:
  • Debits increase assets or decrease liabilities
  • Credits increase liabilities or decrease assets
  • Assets = Things owned (e.g., cash, equipment)
  • Liabilities = Things owed (e.g., loans, salaries)
  • Equity = Assets - Liabilities (Net worth of business)
  • Important: Debits must equal credits

Bookkeeping Fundamentals

• Accounts:
  • Asset accounts (e.g., inventory)
  • Liability accounts (e.g., accounts payable)
  • Revenue accounts (e.g., sales)
  • Expense accounts (e.g., utilities)
  • Equity accounts (e.g., retained earnings)
• Journal Entries: Record every transaction in appropriate accounts
• Balancing Books: Ensure total debits equal total credits to close books

Using QuickBooks Online (QBO)

• Automates tracking of transactions
• Connects to bank accounts for transaction matching
• Resources available for learning QBO and finding help

Finding an Accountant

• Importance of referrals for finding a trusted accountant
• Questions to ask potential accountants
• Resources: AICPA directory, small business events

Process of Getting Paid

• Track work, send invoices, receive payments
• Suggested to keep 30-35% of payment for taxes and expenses
• Use Hourslogger for tracking work and syncing with QBO

Business Expenses

• Deductible costs to reduce taxable income
• Enter expenses in QBO
• Set aside funds for taxes (30-35% of revenue)

Taxes and Benefits

• Quarterly tax payments recommended to avoid end-of-year lump sums
• Health insurance might be legally required depending on state
• Research additional benefits like life insurance, retirement plans

Filing Taxes

• Sole Proprietorship: Report on Schedule C with Form 1040
• LLCs:
  • Pass-through entity; report on personal tax returns
  • Single-owner LLC: taxed as sole proprietorship
  • Multi-owner LLC: files Form 1065, owners use Schedule K-1 and Schedule E
  • Can elect to be taxed as C-Corp or S-Corp

Audits

• IRS audits verify accuracy of tax returns
• Keep thorough records to avoid audits
• Triggers include unusual deductions or income

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Conclusion

• Next topic: Contracts for consulting
• Recommendation for using Hourslogger for time tracking and invoicing