Home› Community Chat› Wave Discussion › Using Wave

How to categorize payments to freelancers

Alex_V2Alex_V2 Member Posts: 5

I often hire some freelancers from fiverr to assist on a project and they are located in Canada and Europe. I am based in the US. What is the correct way to categorize these transactions? Should I make a bill every time I send over a payment or just categorize it as services expenses? Do I need to create a report at the end of the year for my tax returns for these specific transactions or do I need to issue them a 1099?

Tagged:
in Using Wave

Comments

  • Carlos_CCarlos_C Member Posts: 1

    I'm facing a similar issue. I currently hire freelancers to complete certain portions of my web design projects and having a difficult time understand how to categorize them. Would this be considered cost of goods sold? Do I need to add a category under cost of goods sold for these services?

  • CalliePCallieP Member Posts: 439 admin

    Hey @Alex_V2 @Carlos_C , thanks for your messages! I'm afraid as a Community admin, I'm not able to answer what would be the best option for your business - only an accounting professional will be qualified to offer this type of advice. That said, I can explain the function of a Bill in Wave, and you can determine on your end if that makes sense for your business needs!

    • A Bill is used to indicate that funds will be going out of the business, but haven't yet. So this feature helps with projecting your business expenses. It can be used for things like your phone bill. When you create a Bill, it appears on your Accrual-based reports as an accounts payable expense. It will not show up on Cash-based reports until it is marked as paid. Learn more here.

    As for whether this means you need to create reports, this will vary from region to region, but we do have this year end guide which should shed some light on the usual reports you need to get ready for filing!

    Lastly, regarding which category to choose - an accountant will be best able to answer this question as well. We're here to help with 'how to do' rather than 'what/why to do', so aren't equipped to offer this type of advice. As I understand it: if the thing you're buying is going to be sold, using cost of goods sold would make sense. If the thing you're buying is part of doing business (like a phone bill), using an operating expense would be more applicable. But again, I must recommend speaking with an accountant to be certain.

    Thanks so much!

Sign In or Register to comment.