The Hectic™ accounting features allow you to document your business-related expenses and their related vendors, and then keep tabs on the ratio of your income to your expenses on an ongoing basis. This means that all year you're proactively preparing for tax season, and can easily pull profit and loss (P&L) statements for your quarterly taxes.
When you're self-employed (i.e., a freelancer), the cost of a product or service can be deducted from your revenue (profit vs. loss) in order to decrease the total taxable revenue. The following is an excerpt from our How to pay taxes as a freelancer guide:
What are tax deductions?
Tax deductions are a way for small business owners to avoid paying taxes on money they spent to run their business. You can’t just claim any expense, however. The IRS only allows you to deduct necessary and ordinary expenses. It defines these deductions as:
Necessary - “A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.”
Ordinary - “An ordinary expense is one that is common and accepted in your industry.”
Hectic can help you keep track of each of your expenses throughout the year so you don't have to scramble to collect them all when it is tax time. Read more about claiming business tax deductions in chapter 3 of our tax guide.
How to add an expense
Find Hectic's full suite of accounting features under "Accounting" in the left panel. Click on the "Expenses" tab to view and add expenses. Choose "New expense" in the upper right corner. You can also quickly add an expense from the top of homebase using the expense icon.
Add your amount and detailed description for yourself (and your tax consultant). All details will be included in your downloaded profit and loss report. Use the dropdown to select the appropriate category and vendor (if applicable.)
Use the "Past or future?" tab to mark if you have paid for the expense or not and set yourself a due date to pay if necessary. This date will also appear in your downloaded profit and loss report for your records.
Once the expense has been created and saved, you can attach any related files to the expense.
If applicable, select the client that this expense was created for. You can assign it to a project and choose if the client will reimburse you. If you have selected expenses that are reimbursable by the client, you will see a line on the next invoice you create with that client for "Add reimbursable expense."
Pro tip: If you have a business bank account, you can use Plaid's integrated automation system to automatically add expenses. Set up Plaid by going to your account settings > connected apps. You can also sync clients, invoices, payments, and expenses with Quickbooks Online.
Profit & loss
See exactly how profitable your business is anytime by using the Profit & loss tab which integrates all your income from paid invoices with your tracked expenses. Use the filter in the top right to show just the months that are important for you to see and pull the full year for your accountant at tax time. The expenses are divided into command deduction categories allowed by the IRS for self employed persons.
Other tax resources
Hectic™ Academy Freelancing Financing module includes the "Take control of your taxes" module, which empowers you to get one step––or more––ahead of your taxes and gain a clearer understanding of what you earn vs. what you owe.
Tax advice from a 13-year freelancer by Anthony Sills, copy writer and full-time freelancer