Sofia Santos
3/4/2024Accounting is a crucial aspect of financial management for every entrepreneur. It's not just about keeping a detailed record of money coming in and out and meeting tax obligations. It also involves mastering some of its most basic principles in order to achieve financial stability.
Today's guide aims to provide a clearer and more practical understanding of the role of accounting in the freelance world. As well as offering useful tools for managing your finances effectively in an ever-evolving environment.
Accounting is the process through which financial operations of a business or individual are recorded and classified.
Accounting serves to provide financial data timely and accurately, which assists freelancers or companies in decision-making.
Similarly, it supports compliance with legal and tax obligations and allows for the evaluation of economic performance.
There are a series of concepts essential to understand about accounting in the freelance field.
Some of them are:
Income: the payment you receive from clients for your services.
Expenditures: the outflow of money you have as a freelancer.
Assets: represent resources you control and have economic value, for example, equipment or investments you make.
Liabilities: are the financial obligations you have, including bills to pay or other types of debt.
Equity: is your net worth as a freelancer, that is, the difference between your assets and liabilities.
Balance Sheet: represents your financial state, which shows your assets, liabilities, and equity at a specific moment.
Income Statement: is a summary of your income, expenses, or losses during a particular period.
Cash Flow: tells you the inflows and outflows of your operations.
Accounts Receivable: are the amounts that clients owe you for your already delivered freelance work.
These concepts will help you keep proper accounting, but that's not the only reason why it's beneficial to be aware of them. They're also important to consider when drafting a freelance proposal to make more informed financial decisions.
Accounting is fundamental for managing your finances as a freelancer effectively.
Accounting allows you, as an independent Mexican, to:
Keep track of income and expenditures: ensures effective management of finances and maximizes tax deductions.
Freelance invoicing: accounting helps you issue valid invoices to your clients to support income.
Taxes and tax obligations: understanding and complying with tax obligations will help avoid legal and financial problems. For example, paying income tax and VAT, if necessary.
Separate accounts: prevents mixing personal money with professional, simplifying accounting tracking.
Reserve funds: freelancer's salary is irregular, so there are days you may have higher income than others. Having a reserve for these low periods or emergencies guarantees financial stability.
In summary, accounting is beneficial for freelancers because it helps track income and expenditures. But also because it allows for keeping accurate records when filing tax returns and calculating taxes properly.
It's the set of laws and regulations that establish how taxpayers must calculate and pay their taxes.
Independents in Mexico may be subject to different regimes. And if you want to issue freelance invoices formally, you'll need to register income and expenditures, apart from calculating VAT (if applicable).
Also, the freelance tax regime means you'll have to file regular tax returns with the SAT (Tax Administration Service). This translates into having your own RFC, which comes through two options:
1. Physical person with business and professional activity (RIF).
2. Simplified Trust Regime (Resico).
Now, which freelance tax regime suits you?
The first offers accounting simplicity and even lower tax obligations, making it a very popular alternative among independents. While the second grants tax advantages and requires fewer administrative requirements, albeit with possible limitations.
However, the choice of freelance tax regime also depends on certain factors, for example:
Your income.
The nature of the activity.
Your personal preferences.
Either way, it's ideal to seek advice from an accountant to know which fits best with your individual needs.
In addition to the above, we want to offer you a few tips to start managing your finances:
Manage each of your financial transactions through detailed record-keeping.
Separate your personal finances from those derived from your freelance work.
Organize your time to update your accounting records regularly.
Use an Excel spreadsheet to organize your data. Although you can also use accounting software to manage your finances.
Opt for an accountant or tax advisor if you have doubts or need help. You don't even have to leave home.
Remember, you can always turn to a reliable expert on freelance job pages. Many accountants on these sites offer their services to advise you on what you should do. Additionally, you can pay for services like DolarApp and save on exchange rates.
If you don't want to pay an accountant directly, there are other ways to start managing your business's accounting. In Mexico, there are several platform options and tools that can support you, such as:
CONTPAQi. This accounting software suite offers comprehensive solutions for managing accounting, payroll, and more. It will help simplify your accounting processes and comply with all tax regulations.
Facturama. This online platform serves to invoice as a freelancer through electronic invoices quickly and easily.
Aspel. Accounting and administrative software used by Mexicans to accurately manage their financial operations.
Any of these can facilitate expense tracking, invoice management, tax calculation, and even generate financial reports.
We hope this guide has been useful for you to better understand accounting and its importance in your career as a freelancer in Mexico.
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