Accounting for contractors using GnuCash?

[GWB]

I do something like what Christopher suggests.  I have several expense
accounts (Expenses:1stScheduleC:Mileage,
Expenses:2ndScheduleC:Mileage) and the receiving account can be
whatever you like.

Description for each transaction is something like:

2017 Mileage Rate Business Expenses

Memo would be:

39.4 Miles X 2 X $0.535 Correspondence, Deliveries

$0.535 is the IRS mileage rate for that year.

I then put in $42.15 (which is 39.4*2*.535) in the expense column, and
the same amount in the transfer account.

You then have to divide the total amount by the mileage rate when you
do taxes to give you the number of miles.  So maybe Christopher's way
is better.

Gordon

On Fri, Jul 28, 2017 at 10:29 PM, GWB <gwb at 2realms.com> wrote:
> Here's what I do, but it might not work for you.
>
> I use two pieces of software for accounting, bookkeeping, and
> compliance: gnucash and prosystemfx from CCH (Wolters Kluwer).
> gnucash is excellent for tracking expenses, but for income amounts I
> rely on 1099's, DIV's, etc.  Similarly, I sometimes use gnucash for a
> very rough way to track equities, options, etc., but I rely on the
> brokerage to figure out valuations in an account, which they do in the
> US with a year end 1099-DIV.  Prosystemfx is not free, open source, or
> cheap, but I have found it teaches me more about tax and compliance
> than anything I ever read in an IRS publication.  I've seen how other
> countries handle taxation, and while not pretty, most of them are less
> convoluted than the US.
>
> I hesitate to use gnucash to track any kind of income, dividends and
> gains other than cash.  State and federal tax authorities will compare
> your return to documentation they get from banks, investment firms,
> etc., on the various forms (1099, W-2).  They will be interested in
> what you have as deductible expenses, so definitely track those in
> gnucash and keep receipts.
>
> If you want your books in gnucash to reflect your current profit/loss
> or net worth, then clearly try to include everything in gnucash,
> including your income, dividends, etc.  But you will find that outside
> of direct payments, gnucash may not be able to mirror closely what
> your investment account gives you at the end of the year in a 1099 or
> a 1099 DIV.
>
> But that's up to you; definitely track the deductible expenses and
> cash income with gnucash, but don't get frustrated with the variance
> between gnucash and an investment account end of year statement (use
> the statement amounts on your tax returns).  This list has lots of
> advice from individuals who use gnucash to track both realised and
> unrealised gains; they can let you know how they handle tax and
> compliance forms.
>
> Most people would advise you to take your data to a tax professional
> and not try to finish a return by yourself.  ProSystemFX is expensive
> (probably north of $500 a year).  The learning curve is steep, but I
> have found it to be an excellent way to understand (at least in part)
> something I never wanted to: the tax code.  I have no complaints about
> Turbo Tax and the other products out there, but they all have trouble
> handling anything other than very common situations.  Multiple
> Schedule C's, partnerships, etc. are not their forte.
>
> My guess, from reading the list, is that you are extremely
> intelligent, capable, and are very good at teaching yourself, and
> self-learning in general.  I'm none of those, but I am forced to be
> something like it when I turn in my tax forms.  So don't let the
> complexity get you down.  Use gnucash to track expenses and cash
> income, and don't freak out if you can't get it to track your other
> income; use the 1099's, W-2 and DIV forms at year end.
>
> Gordon
>
> On Fri, Jul 28, 2017 at 6:23 AM, JHC <jhc at gs11011.com> wrote:
>> 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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