Tax tips for freelancers

Not having a boss is, for many of us, a dream. For others – company owners and freelancers – it is the reality. Freelancing is the most common way to be self-employed and freelancers tend to work as actors, writers, artists, graphic designers, fitness instructors and the like. Although it has its perks, there a down side: come tax time, it’s you who has to manage the end of financial year. If you don’t bother, you can find yourself in a whole new world pain. Here’s some things that might be helpful for you to know to reduce the headache.

Getting started

Before even thinking about getting paid for a job, a freelancer needs to apply for an Australian Business Number (ABN). Most employers won’t consider taking you on till you have an ABN, and if they did, without an ABN they’d have to give 48.5 percent of your earnings to the Australian Taxation Office.

If you are registered for GST to claim a GST input tax credit and to claim a deduction you will need a tax invoice for all taxable purposes, except for items less than $55 (inclusive of GST). If you’re not registered for GST you can still claim a tax deduction on the cost of goods and services (inclusive of GST), as long as they are essential to your business.

So what kinds of things are "essential to your business"? Freelancers can claim back tax on all types of things. A writer or graphic designer, for example, could claim the tax back on a new laptop, an actor perhaps some props. Other possible deductions might include magazine subscriptions, partial internet connection costs, software, books and hardware. How much can you claim? This depends on the percentage of time you use the goods for work and is subject to depreciation costs. To get it right from the start, it can really help to invest in an accountant. Take a recommendation from a friend or see if you can find a freelance-friendly advisor. Often, the savings they will find for you will more than cover their fee. It really can pay to have a professional who can do your tax for you and who knows all the ins and outs of what you can claim.

Basic tips

  • Keep your receipts. This applies to so many areas, not just the big purchases but also parking or bridge tolls, mobile phone bills, stationery and so forth, but only if it’s work-related!
  • Keep a record. Use accounting software or handwritten records (not ideal) to account for all your work-related expenditure. If you start to get a lot of work things might get out of hand so good record keeping is important. Popular software includes MYOB and Quiken but Excel and other spreadsheets can also help you stay organised.
  • Travel expenses. If you use your car for work and travel less than 5,000 km per annum you can claim a rebate based on a cents-per-kilometre amount. If you travel more than 5,000km you need to keep a log.
  • Invoicing. File invoices in date or cheque number order. It will be far easier to access the details if you happen to be the subject of an audit.
  • Get an accountant. It’s worth it. Their fee is deductible and they’ll save you heaps more than you pay them, in most cases. An accountant is also a good person to teach you about what you can and can’t claim and where you can find deductions. But shop around – not all accountants have experience with freelance tax needs.

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