Have you ever struggled to manage your financials as an independent contractor? If the answer is yes, you’re not alone.
According to Freelancer Map’s 2021 study, 25% of freelancers consider accounting one of the greatest challenges of self-employment. 21% also said that trying to do their own accounting was one of the biggest beginner mistakes they made when entering the world of freelancing.
These mistakes aren’t just annoying—they often mean missed opportunities to save money.
Thankfully, you can balance your own books and nab back tax savings with expense tracking platforms. With an independent contractor expenses spreadsheet or software tool, you’ll be set to track your business costs accurately and all by yourself, no tax professional needed.
What is an independent contractor expenses spreadsheet?
An independent contractor expenses spreadsheet is a table—often created through Microsoft Excel or Google Sheets—that tracks your costs as a freelancer. From this spreadsheet, you can sort and filter your financial data and perform calculations via formulas and functions.
Benefits of using an independent contractor expenses spreadsheet
When you’re self-employed, you don’t have the luxury of an employer covering your work expenses. Instead, you need a system for tracking your costs, so you know how much room you have to invest in your business and can properly file your taxes.
An independent contractor expenses spreadsheet does just that. Use this tool to keep a reliable historical record of your financials.
With this information handy, you’ll be able to maintain good credit. A common myth is that freelancers and independent contractors can’t have good credit because they aren’t receiving regular paychecks. However, one of the easiest ways to improve your credit score as a freelancer is by proving that you are paying your business bills regularly and on time. You can use a credit reporting service to help you get these expenses (insurance payments, phone and Internet bills, etc.) to appear on your credit reports and help boost your credit score. Last year, freelance writer Wendy J. Fox received national attention for having a perfect credit score.
An independent contractor expenses spreadsheet is also useful for identifying saving opportunities. It’s plain and simple—if you don’t know how much you’re spending each month, you won’t know which expenses could be lower or eliminated.
Come tax time, a spreadsheet of your expenses is also helpful when claiming tax deductions—another key source of savings. When it’s tax season, you can look back on your spreadsheet to identify all of the costs that are deductible.
Tax Write-Offs You Should Claim as an Independent Contractor
Tax deductions are expenses, often for business, that can be subtracted from your gross taxable income—helping you lower your tax payments and invest in your work.
Stay up to date on common independent contractor tax deductions:
- Self-employment tax: You can deduct half of your Medicare health insurance and Social Security taxes.
- Equipment: You can deduct the cost of any equipment you directly use for work purposes at your home office (laptops, tablets, smartphones, software, etc.), along with your Internet bill, phone bill, and other office expenses.
- Rent and mortgage payments: If you’re renting out a space to work that you don’t own, you can deduct that expense. Or you can write off your home mortgage interest as well if you’re a homeowner who works as an independent contract from home.
- Business insurance: You can deduct any insurance payments that go toward protecting your business, such as liability and property insurance.
- Advertising: All advertising costs—including billboards, your website, television commercials, and online advertising—are deductible.
- Training and education: The cost of furthering your knowledge as a freelancer can be deducted. You can deduct training programs, subscriptions, or seminars related to the line of work you’re in.
- Meals and travel: Personal meals can’t be deducted, but meals for entertaining clients and discussing business can be deducted. Work travel expenses can also be deducted.
- Vehicle use: All car expenses related to work can also be deducted.
There are plenty of other tax deduction opportunities that might be a bit under the radar, like gifts.
“One opportunity that most independent contractors don’t know about is that you can deduct gift expenses,” said freelance web designer and content creator Kathryn Schwab. “Specifically, you can deduct up to $25 per person, per year for business gifts. Incidental expenses, such as postage, engraving, and gift wrapping are not included in that $25 limit.”
For an exhaustive list of tax deductions that small business owners can claim, check out our definitive worksheet.
How to organize receipts for 1099 tax deductions
Everyone who earns income as an independent contractor must file a 1099 form with the IRS. This process involves calculating your self-employment tax, federal income tax, and (depending on where you live) your state income tax.
The first step to filing your 1099 tax forms properly is being able to track your expenses—arranging and storing the source documents and receipts that prove and track business expenses.
Until recently, business leaders had to keep hard-copy receipts and big folders or filing cabinets. Today, they can simply take pictures of their receipts and store them digitally.
Take pictures of your receipts with any smartphone or tablet camera and save them to your personal computer or to the cloud (Google Drive, for example).
Our Neat mobile app is built for receipt documentation. You can take pictures of your receipts and save them in the app, and that’s just the start. We also have optical character recognition (OCR) software built-in that can extract the text from your photos to turn your receipt photos into an actual digital document that can be easily organized and searched.
Once you’ve created a record of your receipts, it’s time to track the expenses in a spreadsheet.
How to Use an Independent Contractor Expenses Spreadsheet
Ready to give an independent contractor expenses spreadsheet a shot?
To start, organize your spreadsheet in a way that makes the most sense for you. We recommend creating vertical columns with the following titles:
- The date you made the purchase
- The name of the expense
- The merchant you bought it from
- The cost of the expense
- The type of the expense (Schedule C category)
Some other best practices for maintaining your expenses spreadsheet include:
- Using the Data Validation feature: Use Excel’s data validation feature to control what type of data can be entered into a cell (numbers only, positive numbers only, etc.) and keep your spreadsheet accurate.
- Prioritize readable, simple formulas: Long formulas are difficult for humans to decipher, even if Excel handles them with no problem. Even if you write your own formulas, long ones can be hard to understand when looking back at them weeks or months later. To break the lines up, hit Alt+Enter after every line of the formula. This way, you’re breaking up the formula into more readable lines while keeping it within the same cell. If you’re collaborating with others, consider creating a resource to explain your formulas.
- Use a cloud-based spreadsheet: Google Sheets, for example, makes it much easier to collaborate with others and track changes, since the spreadsheet is cloud-based. All changes are recorded, and your data is automatically saved every few minutes. The good news is that if you’re working on a Microsoft Excel spreadsheet, it can be easily converted into a cloud-based Google Sheet.
To get an idea of what an independent contractor expenses spreadsheet looks like, check out this free template we’ve created.
Independent Contractor Expense Spreadsheet Alternatives
A spreadsheet isn’t the only way to capture, manipulate, analyze, and store your financial transaction data. There are more modern and technologically advanced bookkeeping solutions for tracking your freelancer expenses as well.
Spreadsheets require manual data input and maintenance, which takes a lot of time and leaves plenty of room for human error.
These mistakes may seem small, but inaccurate expense reporting can be a huge blow to your business. According to a recent survey by Springer Nature, 40% of businesses indicated that errors in financial reporting increased their debt levels and 42% predicted significant reputational damage.
Keep your expense reporting fast and accurate by using cloud-based accounting software, like Neat. Unlike spreadsheets, this software can:
- Capture and store receipts: You can take pictures of your receipts, extract the data from them, and upload both to the cloud for safekeeping. Keeping track of receipts in an Excel spreadsheet requires manual data entry.
- Create and send invoices: Invoicing is another big part of freelancing. Accounting software enables you to create and store branded invoices you can send to customers. You can even get paid securely through accounting software like Neat.
- Offer unlimited support: Accounting software providers (like Neat) offer free, unlimited support via chatbots and live customer service agents who can answer your questions quickly. Getting help with your spreadsheets usually amounts to Googling your questions and looking for tutorials that can hopefully answer them.
Neat also offers a mobile expense tracking and tax preparation app that’s tailor-made for freelancers and independent contractors. Available for Apple and Android smartphones, our mobile app enables freelancers and sole proprietors to manage finances on the go.
Get started with a free independent contractor expenses spreadsheet template
Ready to start tracking your expenses? If you’d prefer a spreadsheet, we have a free downloadable template ready for you. Download it here to get the ball rolling and take control of your freelancing finances today.
And if you’re looking for a mobile expense tracking app, Neat has you covered. Sign up for a free trial today.