Accounting for independent contractors
August 24, 2015

Accounting professionals may be interested in working closely with freelancers in the near future. In the U.S., the number of freelance workers is rising steadily, and accountants can offer expertise to these workers when it comes to managing finances and business accounting.

The freelance market today
According to a 2014 study conducted by Freelancers Union and Elance-oDesk, there are currently 53 million active freelancers in the U.S., making up 34 percent of the entire American workforce. For this study, a freelancer was defined as someone who had completed work in the previous 12 months on a temporary, supplemental, contractual or specific-project basis.

Of those 53 million, 40 percent are independent contractors, 27 percent are moonlighters, 18 percent are diversified workers and 5 percent are small business owners. Independent contractors, who earn income on a project-to-project schedule, and diversified workers, those who work several different jobs at any given time, likely need more assistance managing accounts and preparing for tax season. These professionals have to deal with many different 1099 forms and other financial documents as they assemble, monitor and manage their finances. 

Accounting professionals should see demand for their services increase as the freelance market continues to expand. In fact, 43 percent of freelancers expect to generate more income in the next year, and 42 percent said they make more through freelance work than they did working for a traditional employer.

One obstacle to the freelance life, however, is income instability. Fifty percent of active freelance workers cite this insecurity as a challenge, which means many will be on the lookout for an accountant they can trust. Effective money management is crucial to a healthy freelance career.

When working for a freelancer, accounting professionals need to remember the following:

Keep all contracts
Freelancers should keep copies of all project contracts on hand, whether electronically or physically, according to Bankrate. These contracts serve as references to income owed, project timelines, scope of work and how and when payment will be administered.

Check finances regularly
Accounting professionals working with freelancers may find an irregular schedule causes these project-based employees to save all accounting tasks for a rainy day rather than tracking progress as they go. Accountants need to make sure income and expenses are recorded accurately and swiftly to avoid the trouble of deciphering old documents much later on.

Separate business and personal finances
Some independent contractors are their own bosses with registered businesses through which they discover and complete their freelance work. Accountants want to verify any business name is registered with the state and has its own bank account, according to Shopify. Personal finances cannot be combined with business finances.

Stay in touch
Frequent communication is the key to a healthy freelancer-accountant relationship. Sometimes, freelance workers will double as their own bookkeepers. If this is the case, accountants need to make sure freelancers are well-versed in the task of bookkeeping so they can work together to build accurate financial statements. Before embarking on any accounting journey with a freelancer, it's also important to find out if clients prefer cash or accrual methods of accounting, as everyone should be on the same page when it comes to tracking receivables.

Nexus: G-WEBCD2