The end of the financial year (EOFY) means tackling your tax return. For freelancers, especially first-timers, tax time can feel overwhelming – but it doesn’t have to be.
Here are seven tips to help you get ahead.
- Pay-as-you-go
If you’re earning more than $4,000 a year, check out the pay as you go installment (PAYGI) system. Choosing this approach means you spread your tax payments across the year rather than getting hit with one large EOFY tax bill.
Make sure you have an Australian Business Number (ABN). Many clients will not deal with you if you don’t have one. They are relatively easy to obtain via the Australian Business Register website.
- Put money aside, regularly
Make sure you regularly set money aside if PAGYI isn’t for you. That way you can cover any tax payments the Australian Taxation Office (ATO) ask you to make once you’ve lodged your tax return.
The ATO suggest working out your net weekly earnings. Taxable weekly earnings – calculated tax = net weekly earning. Then using the ATO’s Tax withheld calculator you can estimate the tax payable each week.
A business activity statement (BAS) is issued by the ATO on a monthly or quarterly basis to businesses who’ve registered for an Australian Business Number (ABN) and GST. A BAS spreads tax payments/obligations across the financial year. You’ll pay a penalty if you don’t lodge your BAS or pay your tax on time.
If you have a mortgage, you might want to consider putting aside the money for your tax obligations into an offset account. That way it’s not mixed up with your day to day money, it’s accessible when you need it and it’s working for you in a tax effective way by reducing the financing costs on your mortgage.
- Keep receipts
You may be able to claim for freelance-related costs. So keep receipts for things like:
- Home and office equipment
- Car expenses
- Phone and Internet usage
- Fees or commission charged by certain platforms e.g. Airtasker.
And if you’re set up to charge GST, you may be able to claim some of it back on freelancing-related expenses. See what you could be entitled to claim. If in doubt about a receipt – keep it. Also, your accountant or tax agent should only claim expenses that you have receipts for.
- Separate bank accounts
It’s a good idea to keep your personal finances separate from your freelance finances. That means setting up a transaction and savings account specifically for your freelance business, that ideally links to your accounting software. So you can easily keep track of your earnings and see how much interest you’ve earned.
- Super contributions
Being self-employed means you don’t have to make contributions to a super fund – but it’s wise to think long term, especially when it comes to retirement. You may be able to claim a tax deduction if you choose to build up your super while you is freelancing.
- Income protection insurance
Being unable to work through illness or injury is a freelancers’ nightmare. But if you’ve got income protection it’s likely the cost of your income protection premium are tax deductible. The ATO explains more about this.
- Chat with an expert
Getting expert advice could save you money. It’s worth doing some research, including asking for recommendations, to find a local tax expert or accountant with the right specialist to help you.
SOURCE: www.commbank.com.au
