Xero for Self Employed: A Guide for Sole Proprietors and Freelancers

Managing finances is one of the most significant challenges for any self-employed professional. Between tracking income, managing expenses and preparing for tax season, the administrative burden can distract from core business activities. Effective accounting software for sole proprietors is not just a convenience; it is a necessity for financial health and sustainable growth.

This guide explores Xero as a solution for U.S.-based freelancers and sole traders. We will detail its core features, pricing structure and how it compares to other industry tools.

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Table of contents
Can you use Xero for self employed? Key Xero Features for Freelancers and Sole Traders Streamlined Invoicing Simplified Expense Tracking Bank Reconciliation Financial Reporting How much is Xero for a sole trader? Is Xero recognised by the IRS? Is Xero better than QuickBooks? Conclusion Frequently Asked Questions (FAQ)

Can you use Xero for self employed?

Yes, Xero self employed is an efficient combination for managing business finances. The platform is designed specifically for small businesses, which includes freelancers, consultants and sole proprietors.

Its cloud-based system provides the tools necessary to handle invoicing, track expenses, reconcile bank transactions and generate financial reports from any location.

Xero’s scalability also means it can support your business as it grows. You can start with a basic plan that covers essential needs and upgrade to more advanced features, such as multi-currency support or project tracking, as your client base and operational complexity increase.

A Xero freelancer or sole trader can leverage several key features to streamline financial management and maintain accurate records.

Key Xero Features for Freelancers and Sole Traders

Streamlined Invoicing

Creating and sending professional invoices is simple with Xero. You can customize templates with your logo, set up automated payment reminders to reduce late payments, and accept payments online through integrations with Stripe and GoCardless.¹ This functionality is vital for creating a professional invoice for sole proprietors and improving cash flow.

Simplified Expense Tracking

Xero simplifies expense management by allowing you to connect your business bank and credit card accounts. Transactions are automatically imported, and you can create rules to categorize recurring expenses. Xero also includes a tool called Hubdoc, which enables you to capture and store bills and receipts digitally, reducing manual data entry and paper clutter.²

Bank Reconciliation

The bank reconciliation feature in Xero provides a real-time view of your cash flow. It matches your bank transactions with the entries in your accounting records, allowing you to quickly identify and resolve discrepancies.³ A clear financial picture helps you make informed business decisions.

Financial Reporting

Understanding your business’ financial health is critical. Xero offers a range of customizable reports, including profit and loss statements, balance sheets and cash flow statements.⁴ These reports are essential for monitoring performance, securing financing and preparing for tax season.

With an understanding of the key features, let’s break down the cost.

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How much is Xero for a sole trader?

Xero’s pricing is subscription-based, with several tiers designed to fit different business needs. For a U.S.-based Xero for sole traders, the most relevant plans are typically the entry-level ones.

Plans:

Starter - $29 USD/month⁵

• Send quotes and 20 invoices
• Enter 5 bills
• Bank reconciliations
• Capture bills and receipts with Hubdoc
• Short-term cash flow and business snapshot

Standard - $46 USD/month⁵
Includes all features from the Starter plan, plus:

• Unlimited invoices and bills
• Bulk reconciliation

Premium - $69 USD/month⁵

Includes all features from the Standard plan, plus:

• The ability to use multiple currencies

For businesses operating in the U.S., it’s essential to know whether their chosen software works with IRS systems.

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Is Xero recognised by the IRS?

The Internal Revenue Service (IRS) does not officially “recognize” or endorse specific accounting software products. However, Xero is fully capable of producing the financial records and reports required for U.S. tax compliance.

Using Xero helps you maintain accurate and organized books throughout the year, which is a requirement for all businesses.

The software generates standard financial documents like a Profit & Loss statement, which contains the information needed to complete a Schedule C (Form 1040), the tax form used by sole proprietors to report their business income and expenses.⁶ By keeping compliant records in Xero, you ensure you are prepared for tax filings and potential audits.

Choosing the right accounting software can be tricky, especially when comparing two major players, so let’s dive into the specifics.

Is Xero better than QuickBooks?

The choice between Xero and QuickBooks often comes down to individual business needs and personal preference. Both are powerful accounting tools, but they have distinct strengths. Here is a comparison of key aspects:

User Interface

Xero: Often praised for its clean, modern, and intuitive design.

QuickBooks: More traditional accounting layout, which some users may find less intuitive.

Core Functionality

Xero: Strong in invoicing, bank reconciliation, and reporting across all plans.

QuickBooks: Offers specific features like mileage tracking and quarterly tax estimation.⁷

Pricing

Xero: Starts at $29/month with limits on invoices and bills.

QuickBooks: Starts around $19/month with unlimited invoices but fewer advanced features.⁸

User Access

Xero: All plans include unlimited users, which is beneficial if you work with a bookkeeper.

QuickBooks: Typically limited to a single user on its self-employed plan.

Ultimately, Xero for sole traders is an excellent option for those who value a user-friendly interface and scalability. QuickBooks may appeal more to freelancers who need integrated mileage tracking and quarterly tax estimates.

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Signing up to Wise Business allows access to BatchTransfer which you can use to pay up to 1000 invoices in one go. This is perfect for small businesses that are managing a global team, saving a ton of time and hassle when making payments.

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• Free invoicing tool: Generate and send professional invoices

• No minimum balance requirements or monthly fees: US-based businesses can open an account for free. Learn more about fees here

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Conclusion

Xero self employed offers a powerful, intuitive, and scalable platform for managing your business finances. From creating a professional invoice for sole proprietors to simplifying tax preparation, its features are well-suited for the dynamic needs of freelancers and sole traders based in the United States.

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Frequently Asked Questions (FAQ)

Can I do my own bookkeeping on Xero?

Yes, Xero is designed for business owners to manage their own bookkeeping without needing an accounting degree. Its user-friendly interface, bank feeds and reconciliation tools make daily financial management straightforward.

Does Xero have a mobile app?

Xero offers a robust mobile app for both iOS and Android. The app allows you to send invoices, reconcile bank transactions and capture expense receipts on the go, providing flexibility for busy freelancers.

How does Xero handle sales tax for a freelancer?

Xero can automatically calculate sales tax on your transactions based on the location. It also generates reports that simplify the process of filing sales tax returns with state and local authorities.⁹

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Sources:

1. Automatic invoicing software for your small business | Xero
2. Simplify your expenses with Xero’s expense tracker | Xero
3. Reconcile Bank Transactions | Xero
4. Understanding Xero Financial Statements Made Easy | Vintti
5. Pricing Plans | Xero
6. Profit and loss statement example | Xero
7. Automatically Track Mileage | QuickBooks
8. Products and Pricing | QuickBooks
9. Sales Tax Software | Xero