Accounting for contractors using GnuCash?

JHC jhc at gs11011.com
Fri Jul 28 07:23:31 EDT 2017


I worked for decades as a contractor in IT. Briefly, what I needed as a 
single entity was pretty simple, and fell well within the capabilities 
of GnuCash.

I assume here you work as a contractor essentially in a 'do the work, 
get paid' mode. Whether you operate on a b2b direct mode or in a 1099 
mode makes some difference, but as I found that difference was mostly in 
the fine details. As a b2b operation, my cash flow went to a business 
account, which then paid me and did all the deductions; that made two 
gnucash files, one for the business and one for me. That was a minor 
complexity, but dealing with the business side did cost me time and 
effort. The business side then deals with things like managing 
retirement contributions (beyond payroll deductions), quarterlies, and 
so on. Really straightforward. This does have the advantage of various 
tax provisions, although not as many as I thought; most of those 
provisions applied to me individually, with less number farming.

Eventually I found it simpler to fall back to the simpler mode of 
working through a 1099 relationship, sometimes directly to a client but 
more often through headhunters. I worked, got a signed timesheet 
(usually), submitted and was paid. So long as you can report your wages, 
you can track as much of the payroll detail as you like. I did rely on 
the 1099s at tax time as my final total arbiter, which meant that all I 
really had to track for myself was the cash I got, which I applied as 
income to (from) a bank account. It's possible to track all the detail 
of the payment/deduction stream if you like, as well, although I found 
that unnecessary to my purposes or comfort. After that, it's just a 
matter of tracking expenses to whatever level of detail is comfortable 
to you, given the tax implications of some things being more critical 
than others.

One point might be worth considering. When I worked for multiple 
clients, either sequentially or simultaneously, I did break out both 
income and expenses as subaccounts for each of them. It adds marginally 
to the work of record keeping, but everything rolls up cleanly.

There are only a few areas that mattered for me as a contractor: 
travel/entertainment, auto expense, and general business expenses. Each 
of these are fully covered in IRS documents. I simply made them expense 
items, with whatever detail was required. I kept receipts for all auto 
dollars, since they did matter to my bank balance, but frankly I came 
out better at the end of it using a standard mileage deduction. Same for 
t&e, using per diem standards. If I had used a portion of my domicile as 
an office, I would have put that under the general business expense 
object, and so on. It's that simple.

One item that GnuCash does not manage well is mileage. I tracked it in a 
small notebook in my car, noting that there are various phone apps that 
might easily suffice (my inner luddite does not care for apps). I did 
move my numbers into a spreadsheet for an annual summation, which was 
not an issue. I also tracked days away from home in the same manner. 
There are IRS rules involved here which require basically showing this 
material in a recognizable contemporaneous format, if they ever ask 
directly (they never asked me).

It helps to allow a 'petty cash' expense account, where cash 
expenditures can be marked for business purposes with a split.

This very personal sort of accounting fits within GnuCash very neatly. 
At tax time, my necessary numbers were mostly available by viewing the 
appropriate accounts. I suppose I could have marked everything for tax 
linkages, but it just was not that difficult. And my federal return has 
consistently included forms 1040 and 2106. Boom, done. That simple level 
of structure in GnuCash covered the basic numbers, and the outstanding 
calculations took less than an hour. It's a bit more difficult to sort 
out multiple state returns (the CA version is particularly entangled), 
but that's where the subaccounts per client can shine. Most of them 
depend on primary items from the 1040, but there can be some business 
expenses that are either part of some other sum, or come from the 2106.

Of course you'll note that most of this too-long presentation has little 
to do with GnuCash, and most to do with how your data can be organized.

I wish I'd found Gnucash years earlier.

hth

=========================================================

On 7/27/2017 1:28 PM, Buddha Buck wrote:
> I seem to be transitioning from full-time employment to software dev
> contracting. I don't know really what's involved in that, accounting-wise,
> in the US.
>
> Does anyone know of any resources for how to do the proper accounting as a
> contractor in the US, especially using GnuCash?
>
> Thanks,
>    Buddha
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