As a freelancer, you get to be your own boss and can choose when and where you work. However, these privileges also have a downside – you need to dedicate time to building your business and sustaining it. Unexciting admin tasks, like tax, can eat up your valuable time which is better spent on your clients.
To relieve a little of this tax admin burden, you can use this guide to understand your tax obligations as a freelancer in five minutes. Plus, get some simple tools to help you stay on top of your tax.
1. Are you an employee or contractor?
Before reading any further, you should understand the difference between being an employee of an organisation and a contractor, operating as sole trader. Both come with differing obligations, so take a look this guide to understand where you stand.
2. Understand tax terminology relating to sole traders
Navigating tax acronyms and key terminology can be exhausting. Knowing the meaning of and application for keywords will help you get through your tax a whole lot faster. Take a look at this key tax terminology definition guide.
3. Apply for an ABN
If you don’t already have one and you are not considered to be an employee you might need to register for an Australian Business Number (ABN).
4. Register for and pay GST
If you are you are expecting to earn more than $75,000 annually through your sole trader business you’ll need to register for and pay Goods and Services Tax (GST) by lodging regular Business Activity Statements (BAS).
5. Lodge an annual income tax return
If you’re earning income in Australian, you are generally required to lodge an annual income tax return. Many business owners may like to visit an accountant but there’s also apps, such as Airtax, which allow users with relatively simple affairs, such as freelancers, complete their tax online, in their own time.
6. Understand which business expenses can be claimed as a tax deduction
Depending on the type of work you’re conducting as a freelancer, there will be a range of expenses that you might be able to claim as deductions in your income tax return. Some of the most common include:
- Subscriptions / membership fees for software, resources and publications relating directly to your business operations
- Stationary and technology
- Expenses relating to your location of work, ie co-working space membership fees
- Self education costs relating to your current work
- Advertising and marketing costs for your business
Some deductions may have thresholds in relation to what you can claim and you should always ensure you can substantiate the amount you’re claiming.
Airtax has an expense comparison feature in which you can see how much you’ve claimed against others working in a similar industry and income bracket.
6. Understand which travel expenses can be used as a tax deduction
If you are required to travel to visit clients, it’s likely these costs could be claimed as deduction. You cannot however claim home-to-work or work-to-home travel. Take a look at this guide to understand how to manage any car related travel expenses you may be incurring.
7. Understand how to apportion expenses for deductions
All deductions you claim must be correctly apportioned between business and private use based on actual usage. Expenses such as a mobile phone plan and home internet need to be considered realistically and apportioned accurately.
8. Understand what cannot be claimed as a deduction
It can be tempting to claim expenses that are either loosely or unrelated to your work. If you do so and are audited, you’re at risk of being fined by the ATO. Some of the most common expenses incorrectly claimed as a deduction include clothing (such as suits or dresses) and entertainment expenses such as business lunches or sporting events.
9. Manage appropriate documentation
Like managing your clients, you should also keep appropriate records relating to your income, expenses and tax. There mobile apps for example, which will allow you to keep track of receipts, income and expenses.
This guest post is provided by Airtax.
Airtax makes tax simple for freelancers. Using the web, iOS or Android app, you can lodge your income tax in 15 minutes for $99, BAS in 10 minutes for $49 and organise ABN / GST registration in five minutes for free. There’s no cost to sign up, you only pay when you lodge. Find out more here.
Disclaimer: This content provided here is general tax information that is publicly available. Airtax does not provide any information which is specific to an individual’s circumstances or anything that may constitute advice.