For freelancers, especially first-timers, tax time at the end of the financial year (EOFY) can feel overwhelming - but it doesn’t have to be.
Here are seven tips to help you get ahead.
If you’re earning more than $4,000 a year, you may have to pay PAYG instalments. 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.
2. Put money aside, regularly
Make sure you regularly set money aside. That way you can cover any tax payments the Australian Taxation Office (ATO) asks you to make once you’ve lodged your tax return.
A business activity statement (BAS) is issued by the ATO on a monthly or quarterly basis to businesses that have registered for an Australian Business Number (ABN) and GST. You’ll generally be liable to 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 setting up an offset account and putting aside the money for your tax obligations into this 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.
3. Keep receipts
You may be able to claim for freelance-related expenses. Keep receipts for things like:
- Home-office equipment
- Car expenses
- Phone and internet usage
Please refer to www.ato.gov.au for details of what you might be able 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.
4. Separate bank accounts
It's a good idea to keep your personal finances separate from your freelance finances. That may mean 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 finances.
5. Super contributions
Being self-employed means you don’t have to make super guarantee payments for yourself into a super fund – but it’s wise to think long term, especially when it comes to retirement, and make personal contributions to super. You may be able to claim a tax deduction if you choose to build up your super while you’re freelancing.
6. 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 premiums are tax deductible. Please refer to www.ato.gov.au for further details.
7. Chat to 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 skills to help you.
Check out MoneySmart for helpful info and more freelancing tips.