Using GnuCash as a Freelancer to Track Finances and Prepare Taxes

GnuCash makes it easy to keep track of your money and it creates reports that will make your accountant happy.

I don't own a credit card (by choice), so keeping a close eye on my finances is really important, but I think whether or not you have a credit card, it’s a good idea to track all of your financial transactions.
It’s really the only way you’ll know what’s coming in and what’s going out. This is a great habit to do even if you don’t have any problems keeping a positive balance – and I would say it's essential to do if you struggle with debt.
Luckily I have no debt but I've seen a number of people turn around their whole financial situations just by starting to keep a ledger of all of their transactions.

What Is GnuCash and What Makes It Worth Using?

This is how GnuCash describes themselves:

GnuCash is personal and small-business financial-accounting software, freely licensed under the GNU GPL and available for GNU/Linux, BSD, Solaris, Mac OS X and Microsoft Windows.

It's an open source accounting tool for all major operating systems.
Unlike mint.com and other online services, you won’t be asked to hook up your bank account to it. You also won’t have to worry about a company harvesting your financial information because GnuCash runs natively on your OS of choice and it works offline.
I am pretty decent with Excel but I found it easier to use GnuCash for creating meaningful reports and keeping things organized. If all you want to do is track transactions and create reports, it's a really great tool.
You can even get it to work well across devices if you use tools like Drop Box. I don't do this, but I've heard of others doing this without issues. That’s because GnuCash creates a single database file that can be easily backed up and sync'd across devices.

What Makes GnuCash Good for Freelancers?

Honestly, it's good for everyone but it's especially nice for people who run their own small business. I fit into this category as a freelancer who also creates online training courses.
I happen to have income that comes in from a number of places. There's course sales, affiliate commissions from Amazon, a bunch of freelance clients with various payment methods and a few investments.
Also, while I do occasionally pay for contract work and various services, I don't have any employees on a pay roll. I'm just a sole proprietor living in a country with one of the most complicated tax systems on planet Earth (the US).
It's important to track every penny and to be able to figure out what affects taxable income.

Easily Break down Your Expenses and Income

It takes about 5 seconds to add, edit or delete an account. An account is GnuCash terms for a category. For example under Expenses I have a bunch of accounts. It's really easy to go in and see how much I spent this month on food or whatever I want to know about.
It's also worth pointing out that you can have sub-accounts (see the triangles in the above screenshot). That means you can drill down with as much or as little detail as you want and you can get totals for each parent account automatically.

Why Do Accountants like GnuCash?

All you have to do is goto reports, create expense / income report, pick a date range you want to create a report on, and GnuCash will print out a single piece of paper that breaks down everything for you.
At a glance you can see your business expenses, medical expenses, general expenses and how your income is broken up over the year.
I don't know what your tax situation is like, but that along with some investment related paperwork is all my accountant needs to help me file taxes. I also bring my trusty Linux powered Chromebook with me in case he needs to pry into the details of a specific account.

Prying into the Details of a Specific Account

This is where you'll be entering in the details of each transaction. It keeps a running total for you, and it's really easy to filter by date too.
The idea is, you have "assets" and your expenses and income accounts are associated to it. In the above case, Netflix is an expense (an Entertainment expense to be specific since you can nest accounts) which is why I put down the amount under Expense.

Doing Your Due Diligence Makes Filing Taxes Easy

Of course, with the above said, that means you'll be responsible for entering in the details all of your transactions manually. It's only as accurate as you are.
Honestly, it's not as bad as it seems. For example if I grab some milk, I just drop the $1.99 in under the Food account shortly after I get home. I'm already on my workstation for doing work and GnuCash is only 1 mouse click away.
It's a pretty sweet set up. Doing taxes used to be really stressful for me, but now it doesn't feel too bad. I mean, sure, it frikken sucks to cut that check to the government, but at least the process is fairly painless now.
The way I look at it is, even if taxes were out of the equation I would still be tracking my financials, so it’s not "extra" busy work. It’s just good habits.

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This article was originally posted here.